Cashback Credit Cards: The Basics
When it comes to credit cards, the more you know the better. If you’re thinking about applying for a cashback credit card, but you’re not sure if it’s the right choice for you, we’re here to help. Read on to find out all the need-to-know info about how these cards work, who they tend to suit, and how to make the most of them.
So, what is a cashback credit card exactly? Essentially, a cashback credit card is a card that offers cashback on your spending. Unlike a rewards card, where you choose to collect and redeem points within a rewards program, a cashback card simply provides you a certain amount of cashback, which you can spend as you like.
Cashback Credit Cards: Where To Find Them
When comparing the options, you may notice there isn’t exactly an abundance of direct earn cashback credit cards on offer. Why is this? Here in Australia, cashback credit cards haven’t really caught on yet. If you look at the range of cashback credit cards over in the U.S. for example, you can see how popular this type of card could be here. Over there, you can find much higher rates of cashback on a broader range of cards, typically for a much lower annual fee.
Whether this trend catches on over here is yet to be seen. In the meantime, you can use CreditCard.com.au to see what’s on offer in the world of cashback credit cards. As more providers choose to offer this type of card – and more cardholders catch on to the simplicity of earning cashback rewards – you may find more cashback credit cards being added to the ranks.
Cashback Credit Cards: How They Work
Just like many other types of credit card, cashback credit cards come in all shapes and sizes. Here is how they work.
- Ongoing cashback on card spending: With this type of cashback credit card, you earn cashback as a percentage of your spending. As an example, you could 1% cashback on your card spending, earning up to a total $300 cashback each year.
- Cashback on eligible card purchases: Using this type of cashback credit card, the card provider gives you cashback as a certain percentage of specific purchases. For example, you could earn 2% cashback on a $1,000 purchase to earn $20 cashback.
- Cashback introductory offers: With this type of card, you will only earn cashback during the introductory period. Say you earn 5% cashback on a minimum spend of $1,000 each month for the first three months, you would get $50 cashback each month you spend $1,000, up to $150 in total.
- Cashback through credit card rewards: Using this type of card, you earn rewards points on your spending. You can then redeem those points for cashback, typically in the form of gift cards.
So, how do you get your hands on the cashback you earn? That really depends on the type of cashback credit card you choose.
- Direct Earn Cashback: These cards offer direct cashback on your spending. That means, whether you earn cashback as a percentage of your spending ongoing or during an introductory period, your cashback will be credited directly to your account.
- Indirect Earn Cashback: These cards offer cashback via a rewards program. As you have to choose what you want to do with the points you earn, you have to make the effort to redeem them for the type of reward you want. If you want cashback, you need to choose when and how much to redeem.
Cashback Credit Cards: Who They Suit
Cashback credit cards don’t work for everyone. Just like rewards cards, you need to earn a certain amount of cashback to make the annual fee worthwhile. That’s why cashback credit cards typically work best for cardholders who can channel a higher spend through their card, to then clear their balance each month before it attracts interest.
- Cardholders who pay off their balance each month. If you are unable to pay off your balance each month, a cashback credit card is unlikely to offer you value. The amount you pay in interest will likely negate the cashback you receive.
- Cardholders with a significant spend. If you don’t spend enough on your card, you won’t earn enough cashback to make paying the annual fee worthwhile. Cardholders with a bigger spend can take advantage of higher end cards with higher cashback earn rates and limits, alongside other features.
- Cardholders who want simplicity. Rewards programs can be complex. Unless you put in the time, you may find yourself missing out on rewards value. On the other hand, cashback credit cards tend to be simple. Spend on the card to earn cashback. That’s pretty much how it works.
Cashback Credit Cards - Frequently Asked Questions
With a standard rewards program, you typically earn points on your spending, which can then be redeemed within your card’s rewards program. Depending on the program, you could redeem your points for flights, for merchandise, or for services. It’s up to you to decide what you want to redeem your points on, while bearing in mind some rewards offer more value than others.
With a cashback rewards program, you earn cashback on your card spending, typically expressed as a fixed percentage. Usually limited to a total annual or monthly earn, cashback is credited to your account, so you can spend it as you like. This can make it a less complex option than standard rewards, with less effort required on your part.
If you want to earn something back on your credit card spending, a cashback credit card offers an easy way to do that. You don’t have to worry about earning points or redeeming rewards, you just get cashback on your card spending to spend as you please.
However, you do need to make sure your cashback credit card works for you. If you don’t spend enough on your card, you may find you pay out more in annual fees than you get back in cashback. So, be sure to compare your options to choose a card that will reward your spending.
Limits – or caps – are often placed on cashback credit cards, which work to limit the amount of cashback cardholders can earn each month or each year. Always check what the cashback limit is on each card when comparing the options, as this will dictate how much value it has to offer.
For the most part, cashback credit cards allow cardholders to do what they want with their cashback when they receive it. Typically cashback is credited to the cardholder’s account, which means it could be used to reduce the balance, to cover the card’s annual fee, or transferred out of the account to be spent elsewhere.
Time to compare the options? Here’s what you should look for as you compare each cashback credit card.
- Potential Cashback Amount: Estimate your annual spend to work out what it equates to in cashback.
- Cashback Limits: Take into account cashback limits, and see how this could affect the amount of cashback you receive.
- Annual Fee: Look at how much the card charges in annual fees. Subtract this amount from your potential cashback earn to see whether the card offers you value.
- Introductory Offer Requirements: If your cashback earn is provided as an introductory offer, check the minimum spend requirements to make sure you can afford to spend that amount and repay it before it starts accruing interest.
- Ineligible Transactions: Not all spending will earn cashback. Check the small print to make sure the type of spending you do most will earn sufficient cashback to make the card worthwhile.
- Features: Higher end cards will typically offer more features than basic cards. If you want extras, make sure they offer value.
- Introductory Offers: Cards earning cashback ongoing may also have introductory offers on annual fees, balance transfers and purchase rates. Look for offers that provide value, that don’t detract from your goal of earning as much cashback as possible.
- Interest: If you want to get the most from your cashback credit card, you should avoid paying interest by always paying off your balance. With that in mind, the card’s interest rate shouldn’t really be a factor.
- Value: A cashback credit card can offer money back on your card spending.
- Simplicity: Unlike rewards cards, which can be complex, cashback credit cards tend to keep things simple.
- Other Features: Cashback credit cards can offer a range of features to suit your needs as a cardholder.
- Caps: Cashback credit cards tend to place a limit on the amount of cashback you can earn per month or per year. This can limit its value, especially when you take the annual fee into account.
- Annual Fees: Unless you spend a sufficient amount on your card, you may find you pay more in annual fees than you get back in cashback.
- Interest: Cashback cards can come with high interest rates. However, these types of cards only suit cardholders who pay off their balance, so the interest rate shouldn’t be an issue.
- Choose the card that best suits your spending style, while offering the most back in value.
- Take advantage of cashback intro offers, but make sure you can afford the minimum spend.
- Try to maximise your spending to get more back in cashback.
- Avoid overspending just to earn cashback.
- Always pay your balance in full to avoid paying interest and reducing the value of the cashback you earn.
- Find opportunities to use your card, for example to pay bills and your gym membership. Even little things like your morning coffee can add up.
- Keep an eye on current offers on CreditCard.com.au, and make sure your card remains the best option for you.
- American Express Cashback Credit Card. You'll get 5% cashback in your first 3 months capped at $200 and then 1% cashback after
- Citi Clear Credit Card. You'll get a generous $250 cashback by spending $3,000 in the first 90 days from being approved.
- St.George Vertigo Platinum Credit Card You'll get $300 cashback when you spend $900 on eligible purchase