Cash Back Cards – Are They Worth It?

While credit card rewards often have a points system in place, some cards also offer cash back to the cardholder as an incentive for credit card use. But are these offers worth it for everyone?

To get a better idea of who will get the most out of a cash back reward offer, it is important to look at how these deals work and what needs to be considered in the fine print.

How Cash Back Credit Cards Work

Credit cards offering cash back rewards will generally be based on a percentage of overall spending for the month or year. The cash itself tends to actually be in the form of a refund to the credit card account or a cheque that can then be banked and used however you want.

On an international level, both American Express and Citibank are known to offer cash back rewards on their different credit cards, with percentages tending to be around 1-2%.

To get a better idea of how one of these cards works, let’s say there is a card with a cash back reward of 1% per month. If you spent $1000 on the card that would add up to $10, so the incentive is to spend more but still manage to make repayments.

Specialised Cash Back Rewards Cards

While general cash back offers do not generally do that much good, especially when they often come with high annual fees, more specialised ones can really make a difference.

One of the most popular credit cards in Australia offering a cash back deal is the Citibank BP credit card, with 5% cash back on purchases from BP and 0.5% cash back at other petrol stations.

With a higher percentage than is expected for cash back rewards, this kind of offer could be a cleaner, more organised answer to the petrol discounts offered on many grocery receipts.

Credit Card Cash Back Limits

The fine print for many of these offers is the limits on how much you can spend and still get cash back. Whether the percentage is calculated per year or per month will also have an impact on how much value the deal is worth, and generally the monthly calculations have more earning potential.

For the Citibank BP card, the 5% offer applied to the first $600 spent in a month, which means you can get a maximum of $30 back each month.

Put another way, if you spent $50 on petrol in one day, this card will save you $2.50 – to get that kind of saving with the $0.06 per litre Coles and Shell offer you would have to buy more than 40 litres in one go.

Like many other reward offers, cash back has potential to be a huge advantage or disappointment. The key is to look for a cash back offer that is practical and that you know will save you money in the long run.