Caffeine does not cause water retention because it is considered a diuretic. A diuretic helps the body to excrete fluids, states the National Institutes of Health's MedlinePlus. Because caffeine is also a stimulant, consumption of excess amounts of caffeine products can lead to different side effects.
Caffeine can cause a side effect such as the need for frequent urination, notes the University of Maryland Medical Center. This occurs because caffeine does not stay in the bloodstream and goes into the brain and central nervous system in a short amount of time. This leads to urination within a few hours after drinking caffeinated drinks or other products, according to MedlinePlus.
Because caffeine is a stimulant that affects the central nervous system, it can also cause other side effects, especially if it is consumed in excessive amounts. Some side effects are agitation, anxiety, elevated heart rate, headaches and sleeping problems, states MedlinePlus.