Cashback credit cards are growing in popularity because of the simplicity of rewards they offer.
"The complexities of the typical rewards program can be a bit too much work for some Aussies. Cashback credit cards are generally easier to understand and cash in your bank account gives you the flexibility of spending the rewards however you like. Whether it's putting those funds towards paying down debts, saving up for a holiday, or even just covering some weekly grocery expenses, credit card cashback appeals to consumers looking to keep things simple while still getting a little extra value from their credit card."
David Boyd
CEO at Credit Card Compare
How cashback credit cards work
Cashback credit cards work by offering cardholders a certain percentage of their spending as cashback rewards. The cashback amount can vary depending on the card issuer and the type of transaction. Cardholders can earn cashback on a wide range of purchases, from groceries and dining to travel and entertainment expenses.
Example use case to maximise reward points
The value derived from a cashback rewards card hinges on the cash or credit it provides, its cost, and your usage frequency. Consider a credit card offering 1% cashback on everyday expenditures and a $150 annual fee.
Spending $3,000 monthly on this card: Monthly cashback: $30, totalling $360 annually. After deducting the annual fee, the net gain from cashback rewards is $210 over the year.
Spending $1,000 monthly on this card: Annual cashback: $120, which falls $30 short of the $150 annual fee, leading to a net loss. However, this doesn't automatically render the card unbeneficial. To justify its value, ensure the card's other features provide at least $30 worth of benefits.
David Boyd explains the difference. "The crux of the matter is that the benefits one derives from credit card offers are not one-size-fits-all. They are significantly influenced by how much, where, and what card features you value the most".
Benefits of cashback credit cards
- Financial rewards: Cash back credit cards allow users to earn money back on their spending, providing a tangible financial benefit.
- Simplicity: Cashback rewards are straightforward and easy to understand, making them a popular choice for those who prefer a simple rewards system compared to complex credit card rewards you typically find.
- Incentive to spend: A cashback rewards rate can incentivise cardholders to use their credit card for everyday purchases, maximising their earnings.
- Flexibility: Cashback rewards can often be redeemed in various ways, such as statement credits, direct deposits, or gift cards, giving cardholders flexibility in how they use their rewards.
Different types of cashback credit card
1. Credit cards with ongoing cash back
These credit cards provide a continuous cashback reward on your purchases, offering a fixed percentage of your spending back as a credit on your statement. Ideal for regular use, ongoing cashback cards can help reduce your overall expenses over time. The cashback rate may vary based on the type of purchase or the spending category, such as groceries, fuel, or dining.
2. Credit cards with cashback cards as a sign-up offer
Some credit cards entice new customers with an introductory cashback offer, which often involves a higher cashback rate for a limited period or after reaching a specified spending threshold within the first few months of card ownership. These offers can be particularly lucrative if you plan to make significant purchases soon after obtaining the card.
3. Credit cards with gift vouchers
Instead of direct cashback, certain credit cards reward your spending with credits that can be redeemed for gift vouchers at various retailers. This type of reward can be an excellent choice for those who enjoy shopping at specific stores or online platforms, effectively saving money on future purchases through the use of vouchers.
4. Credit cards that earn bonus points that can be redeemed for cash
While not offering direct cashback, these credit cards enable you to earn rewards points on purchases, which can then be converted into cash credits on your account or redeemed for gift cards. This flexibility allows cardholders to choose how they wish to use their rewards, whether it's offsetting the card's annual fee, reducing their account balance, or indulging in a bit of shopping.
What to know before applying for a cashback credit card
When selecting a cashback credit card, consider the following factors:
- Cashback rate: Look for a credit card with a high cashback percentage to maximise your rewards.
- Annual fee: Consider whether the cashback rewards justify the credit card's annual fee.
- Additional benefits: Some cashback credit cards offer perks such as sign-up bonuses, insurance coverage, and extended warranties.
What you should know about card cashback
- Strategic spending: If there are categories of spending with higher cashback rewards, maximise your earnings by spending strategically.
- Pay in full: Avoid carrying a balance on your cashback credit card to prevent interest charges that could negate your rewards.
- Utilise bonus offers: Use sign-up bonuses and promotional offers to boost your cashback earnings.
- Monitor rewards: Stay informed about any changes in cashback rates or promotions offered by your credit card issuer to ensure you are maximising your rewards.
Methodology for our cashback credit card comparison
To determine inclusion and ranking in our cashback credit card comparison table, our team compared the metadata for the following attributes of each card.
- Annual fee initial year: How much the annual card fee is for the first year. Lower is better.
- Annual fee ongoing: Whether there is an ongoing annual fee and how much it is. Lower is better.
- Apple Pay enabled: Whether the card is compatible with Apple Pay. Considered beneficial if possible.
- Balance transfer offer: Whether the card has an introductory balance transfer offer and what the rates, fees, and terms are. Lower rates for longer are considered better.
- Card type: If the card runs on American Express, Mastercard, Visa, etc. since this can affect its acceptance.
- Cashback terms: If the card's cashback program has limitations on how much can be earned.
- Cashback type: Whether the card earns cashback on all spend, offers cashback as a sign-up offer, offers cashback in the form of vouchers, or earns points that can be converted to and redeemed as cash.
- Foreign exchange fee: If there is a fee to process transactions overseas or in a foreign currency. Lower is better.
- Interest-free period: how many interest-free days are available if balance cleared in full. Longer is better.
- Introductory purchase rate: If an introductory offer on purchase is available and its associated rates, fees, period, and terms. Lower rates for a longer period is considered better.
- Late payment fee: The fee charged if the minimum repayment is not made by the due date. Lower is better.
- Maximum credit limit: If published, the highest possible credit limit offered.
- Minimum credit limit: If published, the lowest credit limit offered.
- Minimum income required: If published, the minimum amount of income required as part of the bank's criteria to qualify for the card. Lower thresholds make the card available to more applicants.
- Purchase rate ongoing: What the standard interest rate is on purchases that remain on the balance after any introductory offers expire. Lower is better.
- Rewards program: If the card is linked with a rewards program.
- Samsung Pay enabled: If the card is compatible with Samsung Pay. Considered beneficial if possible.
- Sign-up bonus: If there is a sign-up bonus and what the criteria is to get it. A larger sign-up bonus with lower criteria is considered better.
Our rankings may not reflect what matters most to you. Be sure to compare key rates, fees, and features against your own financial priorities before deciding.
