Imagine that you are going to apply for a new credit card. You’re reviewing your options when you notice that the issuer also offers cashback cards. At a glance, a credit card that gives you a small percentage of every purchase as a reward looks like an incredible offer that’s too good to pass up! Too good to be true, right? How does the credit card company even benefit from this?
Well, as with all credit cards, there’s always a catch. Yes, cashback cards can be beneficial. It’s basically a rewards card that can help you simplify your finances, earn rewards on your spending, and enjoy extra privileges that debit cards don’t offer. It’s also fairly simple to understand, making it a decent choice as a first rewards card.
However, there are some caveats you should consider before subscribing to a new card. Depending on your needs and situation, you may find that a cash back card may not be right for you over a rewards points card or a travel card.
How does cashback work?
Cashback cards are a relatively simple concept. They offer a percentage of cash back on every valid purchase. For example, if a credit card offers 1% cash back on every purchase, you will earn 1 sen in cash back for every ringgit you spend. Some credit cards offer a flat percentage back on all purchases, while others may offer higher cash back percentages on certain popular spending categories.
Unlike travel credit cards, which often reward cardholders with points or miles whose value can differ depending on how said points are redeemed, cash rewards have a fixed cash value. So cash back cardholders have the ability to redeem their cash back in the form of statement credits, online purchases and more.
You might be wondering how credit card companies could benefit from the cash back offer. After all, isn’t cashback just free money that is given to the cardholder? The short answer is no, it’s not free money.
When merchants accept payment by credit card, they are required to pay a percentage of the transaction amount as a fee to the credit card company. If a customer uses a cashback card, the credit card issuer simply shares a portion of the merchant’s fee with the customer. The card company profits by encouraging people to use their credit cards to make payments rather than cash or debit cards, which earn no rewards for the customer. The more you use a credit card, the more merchant fees the credit card company may collect.
What you need to know about cashback cards
To determine if cashback cards are right for you, first take a closer look at its terms and conditions.
- Understand how cash rewards work
The first and most obvious part of cash back rewards is getting some of your money back after you make a valid purchase. Each cash back credit card has its own earning system, but the general concept remains the same.
Some cards offer a flat rate of cash back while others may offer more on certain categories like groceries or gas. Understand what your cashback card actually offers before you sign up and start spending.
Read more: How to stack cash back and rewards on (almost) any purchase
For the most part, most cash back credit cards don’t usually charge an annual fee (although some do, read the terms and conditions carefully). This means you won’t have to sacrifice some of your rewards for fees, and you can keep the card open without having to pay even if you decide to use another card in the future. This can be rather helpful as it adds to your credit history and can boost your credit score.
- Know the conditions to benefit from a registration bonus
Credit card issuers like to sweeten the deal to entice you to apply for a card. Like travel rewards credit cards, many cash back credit cards offer a sign-up bonus. The bonus can either be received immediately upon registration or redeemed after meeting a minimum spending requirement within the first few months. Sometimes these bonuses can be worth hundreds of ringgits.
- Enjoy all the extra business benefits
In addition to sign-up bonuses, cashback cards may also include additional shopping benefits that can help you save money. These benefits include a lowest advertised price match, extended warranties, money back or return guarantees, and more.
Not all cards offer these features, nor are they unique to cashback cards (travel and rewards points cards may have them as well), so it’s best to read and understand all the details of the map in advance.
- Check foreign tax fees
When it comes to travel and foreign transactions, travel credit cards are more likely to waive foreign transaction fees. On the other hand, cashback cards may charge you additional fees for purchases made abroad. There are, however, some rebate cards that reward you for spending abroad, but this is more of an exception than the rule.
- Keep track of earnings caps and categories
Some cashback credit cards allow you to accumulate unlimited rewards, while others set caps on the amount of money you can receive back for regular or bonus category spending.
Unlimited cashback cards exist, but keep in mind that they may offer lower rates to compensate for the lack of a monthly cap.
Read more: 4 things to consider when signing up for a cashback credit card
Is a cashback card what you need right now?
Cash back is tempting and can help you save a little on credit card purchases. However, always read the fine print as these cards always come with some form of limitation. Card issuers have to make a profit one way or another, and these programs don’t seem as generous as they might seem at first glance.
Consumers are encouraged to use their credit cards instead of cash or debit cards, as these generate additional charges for the credit card company and may also cause some consumers to increase their debt if they do not Warning.
Checklist before subscribing to a cashback credit card:
- make sure you are more interested in making money than traveling
- know your self-discipline and control to avoid getting into debt
- compare rewards programs, sign-up bonuses and cashback credit card benefits
- choose a card that will best reward you for your spending needs and choices
Our sincere thanks to