What is a cashback credit card?
Cashback credit cards in Australia offer a way to earn money back on your spending, generally with a one-time sign-up cashback bonus for new cardholders or on an ongoing basis as a percentage of your spending.
Different types of cashback credit card
1. Credit cards with gift vouchers or statement credits
Instead of direct cashback to your account, some cards reward your spending with credits that can be redeemed for gift vouchers at various retailers. It is a common feature on premium cards from American Express, Citi, Kogan Money, and other issuers.
2. Credit cards with ongoing cashback on purchases
Although there aren't many to choose from, there is a select few credit cards with cashback as a percentage of your spending. The cashback rate may vary based on the type of purchase or the spending category, such as groceries at supermarkets, fuel, or dining. How much cash you can get back is generally capped, either monthly, annually, or a combination of both.
3. Credit cards with points that can be redeemed for cash
While it is a bit of a workaround, you could earn points on purchases with a rewards credit card and convert them into cash credits on your account or redeem them for gift cards. The flexibility this affords cardholders is appealing. Points can be used to offset the card's annual fee or to pay off some of the account balance.
4. Credit cards with sign-up bonus cashback
The most widely available type of cashback credit card in Australia is one with an introductory cashback offer to attract new customers. Typically the amount of cashback is a fixed amount, requiring the cardholder to spend a certain amount within a specified period of time. In this way, they are much like a sign-up bonus credit card, with cash instead of rewards points. These offers are especially attractive if you already plan to make significant purchases soon after obtaining the card.
How to make the most of a cashback credit card
When selecting a cashback credit card, consider the following factors.
- Choose a cashback structure that suits your needs. Select a card that fits your financial habits and aims.
- Meet the spending requirements. If the card has cashback as a sign-up bonus, check what the spending target is and make sure you don't have to extend yourself to trigger it.
- Be mindful of excluded transactions. Cash withdrawals (and other cash-like transactions), ATO payments, credit card interest payments, and various fees are typically not eligible.
- Don't forget caps and limits. It's highly likely there will be some limit on how much cashback you can earn. This is usually a fixed dollar amount per month, year, or a combination of both, e.g. $10 per month up to $100 annually.
- Conversion ratio of points to cash. If you choose to earn rewards points that can be converted to statement credits or gift vouchers, how many points will you need per dollar?
- Keep up with repayments. Falling behind on payments may result in losing your cashback rewards.
Cashback rewards insight from a Credit Card Compare expert
David Boyd, co-founder of Credit Card Compare, explains what the main attraction of a credit card that earns cashback is.
Cashback rewards are generally easier to understand than earning rewards points and cash in your bank account. 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.
What Australians think about using cashback credit cards
Sentiment among Australians is generally positive towards cashback credit card offers.
Talking about the value they get from credit card offers, one Redditor mentioned that they "get about $2000 in gift cards from churning credit cards each year and it costs me nothing."
Another revealed how "each year my wife and I spend enough on the credit card to get a few thousand dollars in gift cards, which more than covers gifts for birthday's, Christmas, anniversaries etc."
One commenter put it this way: "if you can get 1-5 cents off every single dollar you spend, why wouldn't you?"
An expert's opinion on cashback offers
Andrew Boyd, co-founder of CreditCardCompare.com.au, explains the difference in cashback offers.
What you want and what you can get are two very different things. There aren't many credit cards in Australia with cashback on every purchase, and even fewer with no caps. Since points can usually be redeemed for vouchers or gift cards, which is practically the same as cash, cards that earn rewards points are basically the same as cashback cards.
Are cashback credit cards worth it?
Credit cards that earn cashback are most beneficial if you always pay the balance in full each month to avoid interest charges, spend enough to offset the annual fee and earn meaningful cashback, and prefer simple, flexible rewards over points programs.
Annual fees can eat into your cashback earnings if you're not spending enough. Also, cashback rates in Australia are generally lower than they are in comparable overseas markets, typically ranging from 0.5% to 1%. There's also the risk that the promise of cashback might encourage overspending.
To determine if a cashback card is worth it for you, calculate your typical monthly spend and apply the card's cashback rate to estimate your annual returns. Then, subtract the annual fee from your potential cashback. Compare this net benefit against other card options. For example, if you spend $2,500 monthly on a card offering 1% cashback with a $100 annual fee, you'd earn $300 in cashback but net only $200 after the fee.
Secondary features like airport lounge access or insurance may add more in terms of value, but only if you actually use them.
