What is a cash-back credit card?
Who doesn’t like to get money for spending money? That, in effect, is what cashback credit cards are all about! Among the various kinds of credit cards, cashback cards are perhaps one of the most popular.
Cashback is a perk many credit card companies offer on their rewards credit cards. It refers to earning back a percentage of the money you spend on your credit card. A cashback card can be a little easier to use than travel rewards cards because the value of your rewards is clear. However, cashback cards can still differ in important ways depending on the rewards program and specific card.
Choosing the Right Cash Back Credit Card for You
It’s always a good idea to research the credit cards available to you and then weigh your options. Let’s break down the benefits so you can compare cards:
Understand the offers.
First, make sure you understand the details of each offer. Does the cashback apply to all purchases, select categories, or a combination of both? Some cards may return a higher percentage back for groceries than they do for gas, as an example. Also, be sure you understand the maximum amounts you can earn and when and where you can redeem your bonuses. Lastly, remember that cashback cards may come with expiration rules. So, don’t leave money on the table for missing regularly scheduled payments or going months without using your card.
Know your spending habits.
Once you’ve nailed down the specifics of each offer, the next step is to analyze your spending habits and match the cashback categories to your style. What types of products and services do you purchase the most – books and movies? Home improvement? Travel? Some credit cards offer cashback bonuses at different places throughout the year, so you have even more ways to earn.
- MMT ICICI credit card - For MMT Bookings - Travel
- HDFC Regalia credit card - For good offers across platforms
- Amazon ICICI - 5% cashback for Amazon Prime users on using Amazon ( Suitable for Online Shopping and Dining)
- Flipkart Axis - cashback across all your favorite categories including travel, shopping, entertainment, and lifestyle.
- Basic Kotak credit cards - have cashback which you can adjust your points with
Disclaimer: We are using some of these examples to help you understand the concept of cashback. We do not mean to recommend these cards to you. Do your research on your spending habits and affordability before you jump the bandwagon to get your own credit card.
Look beyond the cashback.
While the cashback perks are enticing, don’t forget to compare the non-cash back features of the card with your spending style. Do you pay off your credit card in full every month or just make the minimum payment? If you want to get the maximum benefit from a cashback rewards card, it can be a good idea to pay off your balance each month to avoid paying interest.
Don’t forget about APRs (Annual Percentage Rate).
Even on a single credit card account, APRs can vary depending on a few different factors. For instance, one APR may be charged for purchases and another for balance transfers. Promotional APRs can help you save over the short term by offering you a low or 0% promotional APR on certain kinds of transactions, for a limited period of time. Keep in mind that some credit card companies will increase your APR if certain conditions are not met. Paying your balance on time may help you keep your low APR.
When it comes to credit card fees, be sure to read the fine print. Credit cards can vary significantly in what they’ll charge you for annual fees, late payments, balance transfer fees, etc. – so make sure you understand how these fees may affect you.
When choosing the right cashback credit card for you, read through the entire offer and get familiar with all the terms and conditions. Then carefully monitor your spending habits over the next few weeks to see how well your new card fits your lifestyle.
Generally speaking, most cards with good rewards have an expense attached to them, so be careful, if you are a beginner start with a free card with no charge and
How Does Cash Back Redemption Work?
Cashback may be redeemed in a number of ways depending on the bank and credit card. Below are a few examples, be sure to check the terms and conditions of any card you’re looking at:
Statement Credit: You may be able to apply your cashback to your credit card balance.
Gift Cards: Some credit card companies allow you to redeem your cashback in the form of gift cards for popular retailers.
Charitable Donations: Some credit card companies allow you to donate some or all of your cashback to a charity of your choosing.
Bonus Categories: Sign up for extra earning opportunities. You may be eligible for limited-time offers to earn bonus cashback. For example, look for Amex Offers on American Express cards that can give you statement credits for specific purchases. They send emails regularly with what bonus offer is going on.
Why do banks offer cash-back cards?
The logic behind issuing such cards is to encourage you to spend more on your credit card and use it more frequently. If you think you are ‘earning’ money while spending, then you might be motivated to spend more. This is exactly what credit card companies would like to encourage you to do and both sides win.
However, it is very important to be prudent with these spending habits. Do not spend more than your spending budget.
What are the disadvantages?
The only disadvantage is that in order to earn the cash reward, you might be tempted into overspending and racking up a large balance. If you do not pay your bill in full, the interest charges on your outstanding will negate any gains you earned on the cash reward.
A cashback card is a simple way to earn a little extra cash for doing nothing. Just make sure that you read the terms and conditions carefully, spend within your limits, and make your monthly payments in full and on time. Not following these three practices might end up erasing whatever gains you make on the offer.