A cashback credit card is a rewards credit card that provides a specific type of benefit for using it — money credited back to your account.
Used strategically, a cashback credit card can reward you handsomely for routine spending. Cashback programs aren’t as well-known in Australia but they’re one of the most underrated ways to enjoy the additional benefits of a credit card.
If you haven’t heard of cashback credit cards, there are some important details to know.
How cashback credit cards work
A cashback credit card rewards you with a cash refund when you make certain purchases with the card. Cashback rewards can typically be accessed as either cash, a credit on your account or a voucher.
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.
Cashback should not be confused with cash advances. A cash advance is where you withdraw money from a credit card, usually a hefty fee. For example, Westpac charges 3% of the total value of the transaction.
Types of cashback rewards
There are a few ways to look at cashback rewards. They’re usually provided in one of the following ways:
- As a sign-up bonus.
- A cash voucher when you reach a spending limit.
- A percentage of the total purchases, converted into dollars.
The reward amount is usually determined by your spending in the most recent statement period. Some banks honour the rewards in the form of gift cards, which can be used for regular expenses, such as petrol and food.
A common cashback offer is 2% of every purchase. So, if you spend $2,000, you’ll earn $40 back. Research your bank’s partner companies and affiliations, so you can maximise the cashback rewards. You’ll likely earn more in cashback by shopping with specific brands or in specific categories.
How to earn cashback with a credit card
The types of purchases that are eligible for cashback will all depend on the cash back credit card you choose.
For example, the American Express Platinum Card rewards 2.25 points for every dollar you spend – which you can redeem for travel, eligible purchases on your account that offer ‘Select + Pay with points’, shopping online or by redeeming a gift card with an Amex partner.
The Bank of Melbourne’s Vertigo Visa card offers 10% cashback for meeting spending requirements at certain supermarkets and petrol stations, in the first six months that you have the card.
Not all credit card purchases are eligible for cashback offers. Types of transactions that aren’t eligible typically include balance transfers, BPAY transactions, cash advances, bank fees, interest, gambling, and government charges.
Using a cashback credit card strategically
Explore the different reward structures and earn rates available. Don’t be confined by your current bank. Shop around and find the best cashback credit card for your needs.
The cashback structure
Would you like to be rewarded based on your monthly spend? If so, opt for a card that offers ongoing cashback. This is usually calculated as a flat-rate fee ($1 = a point) or as a percentage (2% of every spend). Or maybe you’d prefer a welcome bonus or to accrue rewards for customised spending categories at everyday brands.
Run some numbers
If you take advantage of a welcome bonus, you might forgo the ongoing rewards. For example, the CommBank Low Fee Gold credit card offers a $300 cashback offer but you miss out on earning rewards points.
Know where you shop
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 cashback card where you can redeem gift card rewards at places you frequent. While a gift card isn’t the same as cash in your bank, if you’re able to reduce your regular expenses, it’s just as good.
Cashback caveats to be aware of
Whether you enjoy the rewards as cash credited to your account or through gift cards, you have to use the card to enjoy these benefits. If you’re focused on getting out of debt or have a hard time settling the balance before the interest kicks in, it might not be a good time to get a new cashback card.
You also want to make sure the ongoing account fees don’t cancel out any cashback benefits. It’s easy to skim past the finer details of how these cards work but it’s important to understand the T&Cs to make better personal finance decisions.
Look at the benefits beyond the cashback. Many of these credit cards offer complimentary insurance, which is especially lucrative for travellers. This could save you hundreds per trip, especially if you can add a spouse to the policy for free.
Don’t be afraid to call up the bank and learn about the full range of benefits as a cashback credit card holder.
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