Amanda Smith
Georgia Rose
Mary Flory
A cashback credit card is a type of rewards credit card that credits money back to your account when you use it on eligible purchases.
If used strategically, a cashback credit card can reward you handsomely for routine spending. Here are some important details to consider as you decide if a cashback credit card is right for you.
How does cashback work?
A cashback credit card credits cash back into your account when you make eligible purchases with the card. For example, if your card gives you 2% cashback at a particular grocery store, and you spend $50, you’ll get $1 credited to your account.
Just as credit cards differ from one bank to another, the same goes for their cashback rewards programs. Banks run cashback offers for certain time periods to attract new customers, so always read the fine print.
The reward amount is usually determined by your spending in the most recent statement period.
🤓 Nerdy Tip
Cashback should not be confused with cash advances. A cash advance is where you withdraw money from a credit card like at an ATM. And it usually comes with a hefty fee, such as 3% of the total transaction.
How to earn cashback with a credit card
You can earn cashback on a credit card in three different ways.
- As a welcome bonus when you sign up for a new card, sometimes referred to as a cashback offer. For example, new cardholders may get up to $500 cashback when you spend $300 in the first three months.
- Ongoing cashback when you use the card on eligible purchases. For example, you may get $1 back for every $120 you spend. You also can earn cashback when you use the card at specific retailers that have partnered with the issuer.
- Converting points to cashback. Some rewards cards offer cashback as a redemption option. For example, you can choose to convert the points you’ve earned over the course of the month into cash or a gift card that can be used at select stores.
Not all transactions are eligible for cashback offers, such as balance transfers, cash advances, bank fees and interest charges.
How to choose and use a cashback credit card strategically
Explore the different reward structures and earn rates available, and cross-reference them with your spending habits to get the most of the card.
Pick a welcome offer that fits your needs
Cashback welcome offers only last for a set period of time, and can promise impressive cashback limits. But, if you don’t plan on using the card regularly, the cashback offer may not be worth it. For example, if you only use the card for emergency purchases, you don’t want to spend more than you would in a typical month just to get the cashback — you’re better off saving your money.
Find a card that rewards your shopping habits
As you’re researching the different products, make a list of the common places you shop at. For example, it might be Coles, Woolworths, BP, Kmart, and Uber.
Banks have partnerships with certain brands, so make sure to choose a card where you get cashback for shopping at your favourite stores, or can redeem gift cards for places you frequent. While a gift card isn’t the same as cash in your bank, it can help cover expenses you’d typically have to pay for.
Check your card’s cashback offers regularly
Some issuers change their cashback offers on a regular basis, so make sure you check your card’s reward schedule often to get the most out of their deals.
Is a cashback credit card worth it?
It depends on your spending habits and long-term financial goals. If you’re focused on getting out of debt or have a hard time settling the balance before the interest kicks in, you might want to focus on getting a low-interest card first — any cashback deals the card has will be a bonus.
Another factor to consider is the cost of the card. A card’s annual fee may not outweigh the cashback rewards if you don’t use the card that much. For example, if your card offers $1 back for every $120 spent, but costs $80 per year, you’d have to spend at least $9,600 to cover the annual fee.
As with all credit cards, look at the benefits beyond the flashy deals when shopping around. Pay particular attention to the interest rates and added fees.
Some credit cards also offer complimentary insurance, which is especially lucrative for travellers, and possibly more appealing than a cashback offer.
🤓 Nerdy Tip
Don’t be afraid to reach out to the issuer and ask them about the full range of benefits you get as a current or potential cashback credit card holder.
DIVE EVEN DEEPER
What Is A No-Annual-Fee Credit Card?
A no-annual-fee credit card doesn’t charge a yearly usage fee. Managing repayments is key to unlocking its long-term value.
Kristie Kwok
Understanding How Credit Card Interest-Free Periods Work
Learn how to leverage your credit card, without paying interest.
What Is A Low-Rate Credit Card?
No-frills option for people who can’t always repay their full balance each month.
What to Know About Your Credit Card Limit
A credit limit is the maximum amount of money you can spend on your credit card.