One of the best ways to reduce your everyday living costs is to have one or more cashback credit cards, which reward you with cash rebates and discounts for simply doing your normal spending. But Finty can help you maximise your benefits and reduce your holding costs by helping you understand how they work and what to watch out for.
How cashback credit cards work
Every time you make an eligible purchase with a cashback credit card, you potentially earn a cash rebate. It's not the same thing as an upfront discount. You pay the full price for your purchase, and get the cashback later. Your cashback is usually credited to your card account, so you effectively use it to pay off some or all of your account balance.
Monthly and annual cashback cap
Many cashback credit cards in Singapore have limits on how much cashback you can earn, in the form of a monthly cap (e.g. $70 in total or $25 per spending category), but there are some credit cards offering unlimited cashback.
Spending tiers unlock higher rebates
Many cashback credit cards have rebate percentages which vary depending on how much you spend in a particular period. Bigger spending earns cashback at a higher rate. For example, a cashback card may advertise 'Up to 5% cash rebate on all spend, for spend above $2,000 in each month per quarter'. What this actually means is that you must spend at least $2,000 per month in three consecutive months to earn the 5% cash rebate for the quarter. Missing the target in any single month would see you qualifying for a lower cashback percentage on all your spending.
Let's say, for example, that you spent $2,100 in Month 1 and $2,020 in Month 2, but only $1,950 in Month 3. Your whole spend amount for the quarter would miss out on the 5% rebate and would only qualify for a lower rebate, possibly a $1,000 tier which might earn cashback at 3%. And if you spent only $990 in Month 3 you might be looking at a $500 tier rebate – perhaps only 2% – on your entire quarter's spend.
But not every card has these minimum spend tiers, and a card with a flat rate rebate regardless of the amount spent might be safer for those who spend less or spend inconsistently. Flat rate rebate cards also tend to offer uncapped cashback (i.e. unlimited cashback), so they are also a good choice for really high spenders.
Some cards reward particular spending categories
While some of the best cashback credit cards in Singapore offer either a flat or tiered rebate on all of your spend, others target specific types of spending with higher rebates. So if you can see, for example, that most of your spend goes on dining and petrol, or on groceries, you could look for a card that rewards these areas of expenditure with a higher cashback rate. Another cashback card might offer higher rebates for spending with specific card partners, like Grab or NTUC FairPrice. You could even choose to have two or more of the best cashback credit cards to target several spending categories, if you're confident that you'll remember which card to use on each occasion.
Cashback vs earning air miles or reward points
If you're looking for flexibility, rewards in the form of cashback are the most flexible. The cashback to your card account means that you are getting a discount on spending where you choose to spend. When you earn air miles or reward points from your card, you will probably get a better return by using the rewards for their primary purpose, which is purchasing award flights with air miles or shopping online for merchandise with reward points, so you get less choice when it comes to spending your rewards than you do with cashback. Both air miles and reward points can, of course, usually be converted into cashback, but possibly at a lower rate than if you earned the cashback directly. And having to request the conversion produces just another hassle and delay.
So if you're a frequent air traveller, an air miles card may be your best choice, while those who enjoy shopping in person or online could choose a reward points card because they're happy to shop where their card tells them to (e.g. Amazon, or the bank's online rewards store). But for the best in flexibility and instant rewards (instead of having to save up heaps of points or miles), cashback credit cards come out on top.