So you’ve heard cashback cards offer the best savings, and you want to switch. Or maybe you already have a cashback card, and you’re wondering why the only thing you’re saving up is added grief. Well, there’s a trick to it, because the benefits of a cashback card are more fragile than an alcoholic’s resolve. In this article, I look at how you can maximize your card’s savings, without having to get your CPA:
What’s a Cashback Card?
Cashback cards offer a cash rebate, which varies based on the amount you spend. So a cashback of 5% means you get back 5% of the amount charged to the card. This usually comes as a cheque, issued after each billing cycle.
Recent product launches have signalled a huge shift in favour of cashback rebates when consumers choose what credit card benefits they want. This is reflected in a whole glut of new credit cards, such as the American Express True Cashback Card, the ANZ Optimum Card andOCBC’s 365 Card. Of course, the oldies such as the Citi DIVIDEND Card are still holding strong amidst this heavy competition.
Cashback has an advantage over discounts, because discounts tend to go unused. For example, there’s no point getting 10% off at a restaurant you’ll never visit. Cashback just straight up puts money in your pocket, instead of plugging you with offers you don’t need.
“Sorry, your card discount only applies on leap years, the Pope’s birthday, and when we feel like it.”
But you have to maximize it by:
Knowing the cashback limit
Knowing the terms and conditions of the cashback
Paying the balance in full
Being aware of introductory rates
Matching your spending habits
1. Knowing the Cashback Limit
In some cases, there’s a limit to the size of the rebate. The UOB ONE card, for example, has a maximum rebate of $600 a year. If you know your cashback has reached this amount, it’s time to switch to another card.
Calculate how much you can charge to the card before you hit the maximum rebate. Then get a little sticker or something, write down the amount, and paste it on the front of the card. Apart from reminding you when to switch, it’ll also remind you that you’re overspending. Because if you hit the maximum rebate, you probably are.
“There’s a cashback limit. And you just used it paying postage for your query letter.”
2. Knowing the Terms and Conditions of the Cashback
If you’re unlucky, you’ll get one of those half-assed rebate cards with more terms and conditions than the Versailles treaty. It’s easy to fall for this, because brochures tend to only advertise thehighest possible rebate.
The OCBC Robinson’s card, for example, only gives rebates at Robinson’s outlets. But that’s to be expected, being that it is called the Robinson’s card. Other cards may not be as honest or obvious. You don’t want to charge $500 of petrol to a card, then find out it’s 5% cashback for shopping and 0.5% cashback for petrol.
You should also check for minimum spending requirements. The UOB One card, for example, only starts giving cashback after you charge more than $300 to it. So don’t want to use it for a handful of $50 transactions, and get nothing back at the end of the month. Some other companies have taken advantage of this, with cards like the Amex True Cashback Card offering an unlimited cashback of 1.5% without requiring a minimum spend.
“Before I send you the terms and conditions, do you have any history of back problems?”
3. Paying the Balance in Full
Some card companies suggest you let the cashback pay off the card’s interest. That’s possible, but it’s not recommended. Remember: it’s better to collect the interest than to try and offset it.
A cashback card rewards savers. If you’re actively blowing money on Martinis or the latest tablets, you’ll get higher average savings from a card that caters to that. It’s easy to find a card with 10-15% discounts at Courts or your favourite nightspot; it’s hard to find cashback rebates that high.
So if you’re using a cashback card, commit yourself to maximizing the savings. Pay off the balance in full and collect on the interest. If you intend to actively spend, and you know whereyou’re spending, then get a card with the appropriate discounts instead.
“…and the last repayment is a human sacrifice. Pretty cheap, this bank.”
4. Be Aware of Introductory Rates
Cashback cards sometimes come with introductory rates. Most often, this is 0% interest, or bonus $100 cashback. Some cards like the Amex True Cashback offer 5% cashback for a limited period of time and for a limited amount. As with point 2, don’t take anything on the brochure for granted.
Banks seldom advertise that introductory rates are temporary. In most cases, the huge rebates and 0% interest disappear after three months. Nor should you expect a warning from the bank; they’re just waiting for you to slip up, and they’ll implement new terms without so much as an e-mail. Think of bankers as muggers with really nice suits.
Your best bet is to grill the bank’s service rep on the details. If you’re really worried, hold the conversation with the rep via e-mail. This will give you evidence in case you’re mislead.
“Sure it’s interest free. It comes with free 24% interest.”
5. Matching Your Spending Habits
As I mentioned in point 2, some cards offer different rebates for different purchases. Don’t pick a cashback card just because it gives a flat rebate on everything. These cards are versatile, but the rebate tends to be lower.
For example, the Amex True Cashback card gives the same rebate on every purchase, but the rebate is only 1.5% throughout. The OCBC Robinson’s card, on the other hand, only gives rebates at Robinson’s. But the rebate is up to 10%, right off the bat. Some new cards, such as the ANZ Optimum Card allow you to choose which category of spending you would like to enjoy the maximum cashback of 5% for, and then provide a separate cashback rate for other spending categories.
If you do most of your shopping at Robinson’s, then the Robinson’s card is the better deal. If you’re not specific in where you shop, then getting a more generic cashback card is better. Match the card to your spending habits, and don’t just pick the simplest one.
“Wow, they know my shopping habits. The application form came with a bankruptcy notice.”
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