Cash Back Credit Cards: A Detailed Guide to Opimising Your Rewards

Money for nothing? That’s what most people dream of, but with a cashback card it’s practically a reality. If you spend regularly using a credit card offering cash back rewards, using it to pay for everything from groceries and petrol to your monthly mobile phone contract, then you can expect to earn a decent chunk of money back. Different cash back cards function in various ways, but generally you receive a percentage discount on purchases, either for specific types of payments or every time that you use your card. If you can find a cashback card that suits your spending, you can earn money back to pay your annual fee, reduce the cost of using your card, or simply to treat yourself to something.

Choosing a Cashback Credit Card: A Helpful Q&A

Q: What’s the point of a cash back credit card? A: These cards feature a special type of reward. Instead of earning points for rewards, these cards pay money back into your account. Put simply, this means you save money on your monthly expenses, but individual cards pay cash back for different types of purchases, and it’s important to find a deal that suits your spending to earn maximum savings.

Q: Do they all work the same way? A: No, you’ll need to check with each card you’re interested in. The most straightforward cash back credit cards pay back a fixed rate percentage on all purchases made. This can provide an easy form of reward, without the need to focus on spending at specific stores or working out how best to increase the rate of cash back.

Selected retailer cash back cards provide a bonus rate for shopping at participating outlets. This can be a great way of saving money if you can find a card that rewards you for shopping at your favourite stores.

Some credit cards also feature a tiered program, in which different size purchases receive a higher or lower percentage cash back rate depending on the particular deal.

So when comparing cash back deals, make sure you select one that suits your spending habits and offers the most savings for how you spend.

Q: How much cash back can I expect to earn? A: This really depends on the card you choose and how you use it. Generally, you can choose between the ways you earn cash back: fixed-rate, participating retailer or tiered programs. Within these three categories there is a broad range of different percentages and favoured types of purchase, so it is important to study how the rates that apply before choosing a card.

While the rates vary greatly between different offers, you can typically expect to receive 0.5% or 1% cash back on a flat rate deal, rising to 5% or even 10% with participating retailer programs or during bonus periods.

You should be wary that cash back programs usually feature rules and restrictions on how much can be earned. It is crucial to study the terms and conditions so you understand the best way to get the most from your chosen card.

Q: What transactions can I earn cash back on? A: Cash back is only applicable to purchases. Other transactions such as cash advances, buying foreign currency and travellers’ cheques, balance transfers or gambling payments do not earn any cash back.

Q: Is there a cap on how much is paid back? A: Capping is quite common in some shape or form. Before you apply, check to see if cash back is eligible for all purchase, or just all purchases up to a preset value.

Q: Can the money be used to pay for the annual fee? A: Yes, quite often you can use it to pay for your card’s annual fee. Not all cards allow this, so it’s worth checking before you apply.

Q: Can money back be used to reduce an outstanding balance? A: Again, this is allowed on some cards and not on others. It’s best to check the small print for this before applying.

Q: What’s the best way to use a cash back card? A: The answer is similar to the answer for all reward program credit cards and frequent flyer cards. Pay off your card in full and on time every month, otherwise the interest and late fees you pay on the outstanding balance will reduce the true value of the rewards.

Q: How can I maximise the rewards? A: If you want to earn more cashback, then you’ve got to spend more on the card. Be careful though, that doesn’t mean you should spend more overall, but just that your could use your credit card to pay for as much as you can in order to get more rewards. One of the easiest ways to maximise what you get back is to move regular bill payments over to the card, e.g. telephone bills and utility bills. One thing to consider about this tactic though is whether or not your credit limit is high enough to facilitate the additional spending.

Q: What other factors should I consider? A: It is very important to look at all the features of cash back credit cards before applying to make sure the deal will be genuinely beneficial:

Annual fee: This type of card also often features a high annual fee. Calculate how much your estimated annual spend is, how much cash back this earns and compare this figure with the annual fee. If the annual fee is greater, then you are not going to get any benefit from the card.

Interest rate: Cashback credit cards often feature a relatively high interest rate, which is applied to any outstanding balance on your account. To get the best deal you should always pay your monthly balance in full, but take note of the interest rate because if for any reason you are unable to clear the balance in time, a high rate could quickly negate the savings you make on the cash back.

Introductory offers: Many cashback cards offer an introductory promotion of a bonus cash back rate for an initial period, typically a few months. Check to see how the rate changes at the end of the promotion to make sure you can continue to save.

Balance transfers: These cards also often feature the option to transfer a balance so you can repay your existing credit card debt at a lower rate. You should be aware that balances transferred do not earn any cash back, and if your priority is repaying your debt you are probably better off choosing a different type of card with a better balance transfer deal.

Restrictions and penalties: Banks often impose restrictions on how much can be earned per month, the types of purchases that are applicable and penalties for missing payments or misusing your account. Study all the terms and conditions to ensure you can get the best return.