What is Cashback And How Does it Work?

In the hustle and bustle of everyday life, getting a little extra back on your spending can make a big difference. Cashback programmes offer a fantastic way to turn your routine purchases into tangible rewards, helping you save more and make your money work harder for you. 

Whether you’re a frequent shopper or simply looking to optimise your expenses, understanding how cashback works is key to maximising your savings. This comprehensive guide will take you through the ins and outs of cashback, from how it functions to the various types of cashback credit cards available in Singapore.

Ready to turn your everyday spending into smart savings? Let’s dive in!

Cashback is a fantastic rewards programme that turns your everyday spending into savings by giving you back a percentage of the money you spend. Once exclusive to credit cards, cashback rewards have now expanded to include some debit cards, retailers, and even some online stores!

Here's how it works: When you make a purchase with a cashback card, a percentage of that purchase is refunded to you as cashback/rebate. This cashback accumulates over your billing cycle and can be redeemed at the end of the cycle in various ways – such as statement credits (that decreases your card’s balance), or even converted into points for other rewards.

However, it’s important to note that cashback isn't instant. Your rewards will only appear after your purchase is processed, and sometimes not until you've paid off the monthly credit card bill. Immediate cash withdrawal from a credit card is called a cash advance, which usually comes with high fees and steep interest rates.

Cashback programs can vary greatly depending on the type of card you have. Here’s a breakdown of the main types:

Tiered category cashback cards

These cards reward you with higher cashback percentages on specific types of purchases. For example, you might earn 2% to 3% bonus cashback (or sometimes even more) on categories like petrol or dining. However, these juicy rewards often come with cashback caps. For some cashback cards, the cashback cap is shared across all eligible spend categories whereas for others, the cap varies from category to category. 

In any case, once you’ve hit the cashback cap, the bonus cashback rate will drop to the base cashback rate for said eligible categories. In contrast, all other purchases generally earn the base cashback regardless of whether card minimum spend or cashback cap is met.

Examples of such cashback cards include:

Rotating category cashback cards

Rotating category cashback cards are a bit more complex but can be very rewarding. These cards offer higher cashback rates on specific categories of purchases that can be changed every quarter. To earn the higher rate, you need to activate the new categories each quarter, adding a bit of excitement and strategy to your spending!

One example of this is the Maybank Family & Friends Card. With a minimum monthly spend of S$800, you’ll get to enjoy 8% cashback (up to S$125 in total per calendar month, capped at S$25 per category) on five preferred categories out of 10 choices – groceries, dining & food delivery, transport, data communication & online TV streaming, retail & pets, online fashion, entertainment, pharmacy, sports & sports apparel, and beauty & wellness. As for the cashback on Malaysian Ringgit, you also get to enjoy 8% cashback (capped at S$25). 

Choose-your-own-category cashback cards

Some cards put you in the driver’s seat, letting you choose your own bonus cashback category. You can typically earn a higher rate in a few select categories and 0.25%-1% cashback on general purchases. Instead of being tied to fixed categories or keeping track of rotating ones, you can pick from a list of options that best match your spending habits.

By understanding how each type of cashback card works, you can choose the one that best fits your lifestyle and maximise your rewards, turning your everyday spending into smart savings!

Consider the categories you typically spend on

Review your spending habits to understand where your money goes each month. If you spend a lot on groceries, a cashback card that offers higher rewards for grocery purchases could be your best bet.

Look for a card with a welcome bonus

Many credit cards offer welcome bonuses, giving you a chance to earn extra cashback by meeting a spending threshold in the first few months. These bonuses can significantly boost your cashback earnings early on.

💡 Pro-tip: Another way to elevate your welcome bonus to the next level is to sign up for a credit card with us on SingSaver! We’re constantly running exclusive and limited-time offers featuring exciting rewards such as Dyson Supersonic, Apple MacBook Pro, and more!

Try a choice category cashback card

Some credit cards let you choose the category that will earn a higher cashback rate. This flexibility can help you earn more without changing your spending habits.

Watch out for fees

Annual fees can eat into your cashback rewards. For example, most credit cards in Singapore have an annual fee of S$196.20, along with a complimentary first-year annual fee waiver. However, beyond that, if your cashback earned is less than that of the annual fee, you may not be maximising your card’s benefit. That said, everyone’s goals for using a cashback card differ. For some, earning some cashback to offset monthly expenses is reason enough. 

Alternatively, consider cards with no annual fee to maximise your net cashback. An example of this would be the UOB EVOL Card where the annual fee is perpetually waived with minimum 3 qualifying transactions per month per card membership year. Also, be cautious of foreign transaction fees if you plan to use your card abroad, as these can also reduce your rewards.

Avoid owing overdue credit card bills 

To truly benefit from a cashback card, avoid carrying forward an overdue balance into the next billing cycle/month. Interest charges can snowball quickly and outweigh the rebates earned in the first place because they are often compounded daily on top of your owed balance until it is paid off in full. Spend only what you can comfortably pay off each month to maximise your cashback benefits without incurring extra costs.

By strategically choosing and using your cashback credit card, you can turn everyday purchases into valuable savings while avoiding common pitfalls.