What is a cashback credit card?
Cashback credit cards in Australia offer a way to earn money back on your spending. These cards typically work in one of two ways. Some card providers offer a one-time introductory cashback bonus for new cardholders. In contrast, other providers give you ongoing credits back onto your account as a percentage of your regular spending, provided you meet certain criteria. With a cashback credit card, you can be rewarded for your everyday purchases, making it a potentially attractive option for savvy consumers looking to maximise their credit card benefits.
David Boyd, co-founder of CreditCardCompare.com.au, explains, "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."
How do cashback credit cards work?
Cashback credit cards offer rewards for spending, but they don't always provide cash. Instead, some cards may offer vouchers or reward points. Here are three main ways cashback credit cards can work:
- Cashback per dollar spent on eligible purchases: Some cards reward you with a percentage of your spending within a billing cycle. For example, if you spent $1,000 on a card offering 1.5% cashback, you'd receive $15.00 at the end of that cycle. Compare cashback offers from card providers using the comparison table above.
- Cashback on signup: Some cards offer cashback promotions as incentives for new customers. These typically require you to spend a certain amount within a set time period. For instance, a card might offer $300 cashback if you spend $4,000 within the first four months after approval.
- Cashback from reward points earned: Certain credit cards allow you to earn reward points per dollar spent, which can be redeemed for cashback or gift cards, among other rewards, depending on the card and reward program.
Andrew Boyd, co-founder of CreditCardCompare.com.au, explains the difference in cashback offers, "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: Cashback credit cards allow users to earn money back on their spending, providing a tangible financial benefit.
- Simplicity: Cashback rewards are easy to understand, making them a popular choice for those who prefer a simple rewards system compared to the 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 regular cashback
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 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, spend strategically to maximise your earnings.
- 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 maximise your rewards.
