How do cashback and reward cards work?
Cashback credit cards do just that, they give you a certain percentage of cashback, every time you purchase an item.
For example, a card offering 1% cashback should give you RM5 back when you buy something for RM500.
Reward credit cards work in a slightly different way. They allow you to earn points, not cash. These points can they be ‘spent’ on certain rewards, like petrol, groceries, flights or evenings out.
Which is best for you?
Cashback credit cards are generally the more versatile choice, because the cash you earn can be spent anywhere. Levels of cash back may vary by item (for instance 5% on petrol or groceries but only 2% on other items).
In contrast, the points built up using a reward credit card can only be redeemed against certain items, or with certain retailers.
On the other hand, a reward credit card may be the better value option by giving you greater amounts of benefits if you consistently shop with the associated retailer.
For example, certain reward cards will let you buy petrol with the points you earn, and may allow you to save more money than if you’d used a cashback card for the same purpose.
Need to know
Particularly when using cashback credit cards, there are several common caveats you need to be aware of:
● Cashback deals can often come with limited time offers. For example, a card may offer 3% cashback for the first three months, dropping to 1% cashback thereafter.
● Similarly, the top cashback rates may only be available up to a certain amount. For example, you may be offered 3% cashback, but only on the first RM1000 of spending.
● To make things even more confusing you may qualify for no cashback or a lower level, until you have spent a certain amount, say RM500 in the month, then a higher level cashback for your next level of spend (say RM500 – RM2000), falling again to a lower level or nothing beyond that.
● Certain cashback credit cards charge a fee. If the fees are substantial, it may prove very hard to earn enough cashback to offset them.
● Conversely some cards provide that when you have spent a certain amount within a year, your annual fee for the card which you may otherwise have paid, falls away (possibly even for the life of the card).
Not for everyone
Cashback and reward credit cards certainly aren’t for everyone. Some cards may only be available if you have a very good credit rating. It’s also not making you a saving if you pay a higher fee for a card for rewards which are worth less than that fee.
Repeated failed applications could further damage your credit score, so it’s important you find out what your rating is before you apply. There are several credit rating agencies will help you find out what your credit score is.
Finally, you need to be sure you can clear your balance every month – otherwise the benefit of that cashback or those rewards will soon be eaten away in interest and late payment fees.
Finding the right card for you
The range of rewards on offer can be confusing. Each tends to offer something special.
Before sitting down to choose your rewards or cashback card, try to understand your own monthly spend, and also the types of rewards which you might find useful.
These are just some of the many areas of rewards that you'd typically find: Petrol, Groceries, Utilities and Travel. Having an idea about how much you spend on each of these things will put you in a much better position to make a wise choice.
Another great free benefit can be free travel insurance if you regularly swipe for your travels on certain cards – a nice little saving for a meal out whilst you are on your holidays!
Some cards which claim to give very high cashback will either only offer this on a restricted range of goods, or within a band. For instance, spend up to a cap of RM100 monthly, or only when you spend RM50 monthly.
Comprehensive online comparison tables will help you hunt down the top cashback card currently on the market, or find a reward card that best suits your needs. It’s a good idea to use a couple of different comparison sites, as each one tends to advertise slightly different deals.
In your rush to get rewards don’t forget the basics – what is the fixed annual fee, what is interest and late payments. It’s no use earning less in rewards than you pay in additional fees.
However used wisely cash back or rewards cards can save you RM100’s each year with not too much effort. Happy hunting.