Cashback or Rewards Credit Cards: Which is Better?

Cashback or rewards? When it comes to choosing a credit card, Singaporeans are becoming more savvy than ever. The 2016 J.D. Power Credit Card Satisfaction Survey revealed that 52% of cardmembers chose their primary card because of generous cashback with their credit cards, while 36% were attracted to the credit card rewards programme. 

When you compare and apply for credit cards, are you Team Cashback or Team Rewards?

Here's a breakdown that will help you decide.

The case for cashback credit cards is quite compelling, and the main benefit is obvious: it’s literally cash back every time you charge a purchase to that credit card. How it works is that -- provided you meet the T&Cs -- a small percentage of your monthly spend on that credit card is credited back to you, which you can use to offset the following month's credit card bill.

Cashback credit cards in Singapore give rebates at supermarkets, department stores, petrol stations, convenience stores, and other places you shop for daily necessities. Some credit cards like the UOB YOLO Card also offer generous rebates for dining and entertainment.

If you notice a chunk of your monthly budget going to dining and entertainment, applying for a credit card with generous cashback might be for you.

Cashback is typically awarded for categories like dining or groceries, but some credit cards reward you for shopping at specific stores.

For example, the POSB Everyday Card gives a whopping 20.1% fuel savings at SPC, 10% rebate for online food delivery, 5% off at food courts and fast food outlets and 5% at neighbourhood supermarket Sheng Shiong. This card makes it really easy to save money on essentials like food, fuel and groceries.

If you’re the type of person who can’t wait months for reward points to stack up before redeeming a gift reward, then a top cashback credit card is definitely for you. Assuming you meet the conditions (see fine print section below), cashback is credited back to you every time you receive your monthly bill, which is used to offset the following month's credit card bill.

Most cards require a minimum spend of each month before you start earning cashback. There's also a limit to how much cashback you can earn per month -- usually around S$80 or less. Some credit cards also offer varying cashback amounts based on weekday or weekend spending.

For example, CIMB's Visa Signature and CIMB Platinum Mastercard offer one of the highest cashback rates at up to 10% right now. 

So read the fine print, find out if there's a minimum monthly spend and make sure it’s an amount you're confident of hitting. Stretching your budget just to meet the minimum spend defeats the purpose of getting a cashback credit card to save money.

Rewards credit cards let you rack up points (instead of cashback) with every spend on the credit card. You can redeem these points for air miles, travel vouchers, dining vouchers and more. Here’s why they might be great for you.

Rewards credit cards live up to their name by spoiling you with treats and small luxuries once you’ve accumulated enough points to redeem something of value with the bank's rewards partners.

For example, the Citibank Rewards card allows you to earn 10X Rewards (10 points or 4 miles for every S$1 spent) when you shop for clothes, bags or shoes or at departmental stores or online shopping (shoes, bags, clothes) websites and a whopping 20X Rewards on Amazon Prime Now. 

On top of earning rewards points, credit cardholders also enjoy exclusive offers or welcome gifts unique to the card. This can range from first-fee annual waivers, department store vouchers, free luggage or movie tickets upon signup.

For example, the Standard Chartered Rewards+ credit card currently offers you 1-for-1 Platinum Movie Suites Tickets with Cathay Cineplex.

While many rewards credit cards now also offer generous cashback with certain partners, think of it this way: would you rather have something tangible in hand, like a voucher or physical product versus $20 off your next credit card bill statement? Some of the premium products you can redeem through rewards points include hotel stays, shopping vouchers, cinema tickets and even fitness trackers and hi-fidelity speakers. 

With a rewards card, you often need to spend thousands of dollars to redeem anything of value. Always check the conversion rate of dollar spent to rewards points earned, and what those rewards points allow you to redeem. Redemptions are limited to specific services or products, and how attractive they are depends very much on the bank's rewards catalogue and its network of partners.

Additionally, you often need to spend big within a limited time period to claim welcome gifts or additional bonuses. If you choose to convert your rewards to air miles, you may also need to pay a small conversion fee.

Always read the fine print and study the rewards catalogue before applying for a credit card. A rewards card is not worth it if you have to spend beyond your means to claim or redeem gifts.

If travel is your thing, then definitely a third option to consider is air miles credit cards.

How it works: Instead of cashback or rewards, you're awarded air miles for every dollar spent. How much you're awarded depends on the conversion rate (known as the earn rate or the miles per dollar rate) and this depends from card to card. There's usually a local earn rate and a higher earn rate for spending overseas. Typical local earn rates range from 1 to 3 miles per dollar (mpd) spent.

If the card is linked to an existing miles/frequent flyer programme like Singapore Airlines' KrisFlyer programme or AsiaMiles, the miles you earn are credited directly into your account. Otherwise, it may involve a conversion fee to convert what you earn through your dollar spend into the frequent flyer air miles of your choice, and these air miles also often have an expiry date.

Some credit cards also offer generous sign-up offers of up to 30,000 Miles (upon minimum spend) as well as free access to premium airport lounges.

At the end of the day, your credit card should reward you for things you usually spend on. In other words, understand your lifestyle and spending habits before choosing a cashback or rewards credit card. Your cashback or rewards should come naturally.

For example, if you have two kids and own a car, getting a cashback credit card with significant grocery and petrol rebates is a no-brainer. If you like dining out and shopping, look into rewards card that offers great dining and shopping discounts. And if you love travelling, choose a credit card that offers the most generous air miles for every dollar spend.