Cashback Credit Cards – How They Actually Work and What You Need To Know

cashback credit cards

As Singaporeans, we’re an interesting species. When it comes to looking for good food or places to make out, we look online. But when it comes to our personal finances, like looking for the best credit cards, we ask our family and friends. And the first thing your family and friends will say is, “Get a cashback credit card. You won’t regret it.” And you know what? As annoying as it sounds, they might be on to something there.

If you know as much about cashback cards as a virgin knows about sex, then read on. This is the article for you.

 

What are cashback credit cards?

A cashback credit card is basically one that earns you cash rebates whenever you use it. In “kiasu” Singapore, this is also known as a WIN-WIN situation. It’s like how “Shop N Save” became a household name in Singapore simply with the suggestion that you could save while spending. Never mind that the brand has since become absorbed by Giant. The fact remains that as a concept, it always makes sense to find ways to save money.

 

How does cashback work?

Every time you charge on any of the many cashback credit cards available, you earn cash rebates. These cash rebates are often put in a separate account, so that you can redeem them at participating merchants or whenever it’s convenient.

Now, I must emphasise that cash rebates are not immediate discounts. You still need to be able to pay the full amount for your transaction first. Let’s use the example of the $100 meal with 5% cashback. It doesn’t mean that only $95 gets charged to your card. If your available credit is $95 and you use your cashback credit card, your card will get declined because you can’t afford the full amount.

 

How do you redeem your cash rebates?

There are so many different cashback systems available in the Singapore credit card market today. However, in general, this is how it works.

The cashback you earn each month is accumulated in a separate account. These rebates are then automatically used to offset your spending for the month, subject to several requirements, of course.

For example, the American Express True Cashback Card needs your account to be in good standing and not overdue before they give you your cashback rewards. The Citibank Cash Back Card only credits your account when you accumulate $50 worth of rebates.

American Express logo
Cash Back on All Spend
1.5%
Cash Back Cap
Unlimited
Min. Spend per month
S$0
Citibank logo
Cash Back on Dining, Groceries & Petrol
8%
Cash Back Cap per category, per month
S$25
Min. Spend per month
S$888
Promotion: Get S$200 Cash via PayNow when you apply and spend! Applicable to new-to-bank cardholders only. Valid till 14 Jul 2020.

The redemption of rebates is an extremely important factor to consider when deciding on a cashback card because if your lifestyle and expenditure isn’t able to fulfil certain requirements then you’re wasting an opportunity to save more.

 

What do you need to look out for when you choose a cashback credit card?

There are just two main questions you need to ask yourself when choosing a cashback credit card:

 

1. How much cashback can you earn?

This is often the most important question to ask. There’s really no point getting a cashback credit card if it offers you a pathetic amount of rebates. As we pointed out before, you can use the POSB Everyday Card to pay your utilities bill but does it really make sense to if you only earn 1% cashback? That’s only $1 a month.

POSB logo
Cash Rebates on dining and online shopping at selected E-Marketplaces
Up to 8%
Cash Rebates on SPC, Sheng Siong and Watsons.
Up to 6%
Cash Rebate on selected Electricity/ Telco bills
1%

Some cashback cards now offer 5% cashback and more on specific transactions. The OCBC FRANK Card, for example, offers an impressive 6% cashback on every online transaction.

OCBC logo
Cash Back on Online Spend
6%
Cash Back Cap per month
S$75
Min. Spend per month on Total Purchases
S$600
Online Promo: Receive S$50 Cashback when you apply and additional 4% Cashback on eligible spend! Applicable to new-to-bank cardholders. Valid till 30 Sep 2020.

 

2. How easy is it to earn cashback?

While it’s important to know how much cashback you can earn, but you should not make your decision based on this question alone. You also need to find out exactly how many hoops you need to jump through to earn your rebates.

For example, the UOB One Card promises to give up to 5% cash rebate on any transaction, even recurring payments. That alone should make it one of the highest cash rebate amounts on the market today.

UOB logo
MoneySmart Exclusive
Cash Back on Grab and Daily Essentials
Up to 10%
Cash Back Cap per quarter
S$300
Min. Spend per month
S$2000
MoneySmart Exclusive: Get up to S$60 Grab Vouchers! Valid till 31 Jul 2020.

What’s the catch? Here are just three problems I have with cards like the UOB One Card (and there are certainly other cards with some similar requirements, but this is one good example).

Firstly, you need to spend at least $500 each month for three consecutive months. That means if you miss the minimum spending requirement of $500 for just one month, you don’t get ANY cash rebates for three months.

Secondly, you have to make at least 3 purchases on the card each month, or you’re not eligible for the rebates. Now, you might say, this should be easy to do, especially if you’re making recurring payments for your phone bill or insurance. But the fact still remains that, if you’re not careful, you could forfeit your rebates for three months.

Thirdly, the cash rebates you earn are “UP TO 5%”. In reality, the cash rebates are tiered at fixed amounts of $50, $100 and $300 per quarter (depending on a minimum required spend of $500, $1,000 and $2,000 per month respectively). Basically, you will probably not get 5% cash rebate most of the time.

Say you consistently spent $750 monthly on the UOB One Card, for example. This is less than the second tier minimum requirement of $1,000 per month. What happens? You then only earn $50 for the quarter, or almost $17 a month in cashback, which equates to 2.22% a month. Quite a difference from the 3.33% advertised.

Compare this to cards like the American Express True Cashback Card, where you earn at least 1.5% cash rebate with no minimum spending and no cap on how much cash rebates you can earn. You earn a little less, yes, but you never need to worry about jumping through any hoops in terms of expenditure amounts.

That being said, if you are spending $2,000 a month as an aggregated expenditure of a variety of things, then the UOB One card certainly has some very strong benefits, especially since you can spend on anything to make up that sum.

Also, the UOB One card is celebrating its 10-year anniversary, so you save even more now. On top of the 5% rebates you can earn, they are also offering 10% in rebates on mobile payments. This is no small offering, with participating merchants such as FairPrice, SPC, McDonald’s, Uniqlo and Din Tai Fung just to name a few. Here’s what you need to do to qualify:

  1. Register via SMS (use icon)
    • SMS 10<space>NRIC to 77862. Limited to the first 10,000 Principal Cardmemembers.
  2. Digitise your UOB One Card on your phone (use icon)
  3. Tap and get rewarded (use icon)
    • Tap and pay with your phone on any contactless terminals islandwide from 10 August to 31 October 2017.

On top of this, you will get a $100 cash credit ($80 cash credit for One Card and $20 for One Account)  if you apply now.

 

Why should I choose cashback credit cards over other types of credit cards?

The short answer – to keep your life less complicated. Unlike rewards cards or air miles cards, you usually know exactly how much you’re getting back with a cashback credit card. However, it ultimately depends on your lifestyle.

Take the example of those of you who travel regularly, for example, because your family lives overseas. It makes much more sense to get an air miles card, and channel all your expenditure into earning frequent flyer miles so that you fly for free.

But if you’re just looking to save while you shop, then getting a cashback credit card is for you. And then YOU can be the one annoying your family and friends with your stories of just how much your cashback credit card is saving for you.

One final thing you MUST note: as with the general principle of utilising credit cards, paying your bills on time is especially key for cashback cards. It doesn’t make sense to get all excited about earning 3-5% in rebates, only for it to get eroded by compounding interest on your outstanding balance. Unfortunately, we will probably never live in a world where cash rebates compound as well. So pay your bills. In full, and on time.

 

Still have questions about cashback credit cards? We’d love to hear from you.