The name says it all…get cash back, when you spend money on your credit card. Sounds like a pretty good deal or is it too good to be true?! We’ll let you decide as we investigate the ins and outs of cash back credit cards. Like all reward credit cards make sure you take the time and compare what’s on the market and find the card that best suits you, your lifestyle and spending habits.
How do cashback credit cards work?
Cash back credit cards work in the same manner as other reward credit cards like platinum and frequent flyer in that every time you use your card to make a purchase you earn reward points. However, with cash back cards your points are converted to cash unlike other reward cards where you redeem your points for things like products and flights.
Cashback credit cards are fairly new to Australia so it’s crucial to understand your money reward options before choosing that new piece of plastic to sit in your wallet.
1. Cashback on your credit spend: This option is the most straightforward! You are credited a fixed rate percentage (usually around 1%) back into your account based on your monthly spend. You don’t need to do anything, just sit back and see money pop back into your account! Some cards may offer a higher rate when you shop at specific places partnered with the card such as supermarkets or department stores.
2. Rewards cashback: Earn reward points every time you use your cash back credit card. Watch your points accumulate and when you’re ready convert them to cash. The money will then be paid into your account as credit or a lot of providers will send you a shopping gift card. This could be for $20, $50 or $100 and are to be spent at a particular retailer such as David Jones, Myer, Bunnings, Rebel and Caltex. This may sound like a great idea but you’ll have to spend between $14,000 and $20,000 to receive $100 cash back. Learn more about credit card reward programs here.
How much cash will I get back?
Just how much cash you receive for your spending will depend on the type of card you have and the provider. There are hundreds of cards in the market so use the nifty Mozo Rewards Revealer tool to compare cashback credit cards and find one with the best value.
Here are a few examples below. You’ll see you have to spend a lot on your card to get value out of it, as the annual fee can cost you more than what you can earn in back in cash. Hence why it’s important to compare cards to find the best deal for your spending and lifestyle habits.
Annual Spend: $10,000
Rewards Card: Bankwest – More Mastercard
Annual Spend: $20,000
Rewards Card: American Express – Essential Credit Card
Cashback: $138 (rewards net value)
Annual Spend: $50,000
Rewards Card: ANZ Rewards
5 things to consider when choosing a cashback credit card
- Annual fee: The annual fee can be the deal breaker when it comes to choosing a cashback credit card. If you’re unlikely to spend a lot of money on your card then often the annual fee will cost you more than what you’ll receive back in cash, therefore it’s hardly worth it! This account keeping fee can range from $100 up to as much as $450. For information head over to our guide, rewards credit card vs annual fee.
- Interest rates: Providers charge high interest rates for rewards cards such a cash back cards. The rate can be as much as 19-22%. So it’s worth your while shopping around to find a card with a low interest rate. Or you can even get a cash back card that has interest free days on purchases but this only applies when you pay your balance off in full.
- Caps: Some of these cards have a cap on the amount of reward points you can earn in a year or a month. Also find out if the provider has a limit on the amount of cash you can get back over a period of time. Again this is important to consider as any caps may not provide you with much value from the card.
- Spending habits: Take the time to calculate how much you will spend on the reward card each year. If you’re a big spender who's likely to use the card every time a purchase is made from shopping to flights to bills then it’s may be worthwhile getting a cashback card. However if you doubt you’ll spend more than around $10,000 on the card per year then it’s unlikely you’ll receive any value in rewards.
- Paying the bill: As much as we may dread bills, it’s super important to pay off your credit card bill on time and when possible in full each month. If not the card will cost you more than what you bargained for as interest rates are pretty hefty. Consider setting up an automatic payment plan to avoid paying interest and a late payment fee. To save yourself more money read our guide on avoiding credit card fees.
What fees should I be aware of with a cashback card?
Cash back card have the same fees as standard credit cards. The main fee you’ll be hit with each year is the annual fee and as we’ve mentioned above, this can be pretty high.
If you’re out and about and find yourself in a situation where you need cold hard cash try not to use your credit card to withdraw money from the ATM. If you use your cash back card your provider will slap you with a cash advance fee this is usually around 3% on the amount you take out.
Heading overseas? If so, be aware of a currency conversion fee for every time you use your rewards card to make a purchase. This fee also applies when you make a purchase online at an international store.
In this day and age with technology there really is no excuse for paying your credit card bill late. Pay after the due date and you’ll be hit with a late payment fee. This fee can be easily avoided by setting up a direct debt or automatic transfer.
For tips on avoiding credit card fee click here!
Cashback cards DO’s and DON’TS
- DON’T forget to use your card whenever you make a purchase to maximise your rewards
- DO use your card to pay for bills
- DO take the time to compare cashback cards to find the one you will benefit from most
- DON’T forget to pay your credit card bill on time and in full each month
- DON’T spend more money than you have just because you think you’ll earn more reward points
- DO take advantage of bonus point offers
- DON’T let your reward points expire before you convert them to cash and shopping rewards
- DO leave your cashback card in your wallet!