If you can’t convince them, confuse them.
That is the feeling I get when looking at credit card pamphlets and advertisements.
While the whole world is jumping onto the bandwagon of various reward systems, it is important that we consumers take a step back and know the differences.
“We shall not be fooled!”
TL;DR: Cashback vs Air Miles vs Rebates vs Rewards
Understanding these terms and their differences help one make smarter personal finance decision when it comes to applying for the credit card that best suits his lifestyle.
| Cashback | Cash Rebate | Air Miles | Rewards | |
|---|---|---|---|---|
| Mechanics | Receive X% in cash automatically to offset your next bill payment | Receive X% cash rebate which you can use to offset your a future bill payment | Earn X miles per dollar that you can redeem for flights/rewards | Earn X points per dollar that you can redeem for rewards |
| Pros | - Hassle-free | - Flexibility in redemption | - Value of miles usually higher than cashback - Usually no cap limits to mile earnings | - Value of rewards might be higher than cashback - Flexibility of choosing between rewards, cash rebates or miles depending on card |
| Cons | - Cashback caps may apply - Min. spend may apply | - Cashback caps may apply - Min. spend may apply - Monitoring is required to keep track of cash rebates | - Miles rate changes - Conversion fees/min. spend may apply - Expiry dates | - Redemptions usually restricted at merchant partners - Expiry dates |
If you’re new to credit cards, be sure to also read The Ultimate Guide to Credit Cards in Singapore so that you know exactly what you’re getting into!
Disclaimer: The information provided by Seedly serves as an educational piece and is not intended to be personalised investment advice. āReaders should always do their own due diligence and consider their financial goals before investing in any investment product.
Cashback Credit Cards
Cashback is usually mixed up with cash rebate due to the similarities that they both share.
These days, many banks also go for the blanket term “cashback” cards which include both cashback and cash rebate cards. The mechanism behind them, however, differs. So do read up about the mechanics of the particular card that you are interested in!
A simple breakdown of how cashback credit cards work is as such:
- An item costs $100
- I am using a card with 5% cash back.
- $100 is charged to my card
- $5 is then used to offset my credit card bill for the next month
In short, a percentage of your monthly spending is used to offset your next credit card bill
Pros of cashback credit cards
- Cashback is a simple mechanism that directly benefits one’s pocket with no fancy effort needed
- Cashback is ultimately money that can be used to purchase multiple things
- The amount is directly back to the credit card account, hassle-free
Cons of cashback credit cards
- To maximise cashback there is usually a list of requirements to meet which can include minimum spending on certain categories per month
- There is usually a cap to the amount of cashback one can receive
Pro Tip: For the most hassle-free experience, you can opt for unlimited cash back cards that give you cashback with no exclusions.
Who should apply for a cashback credit card?
- Those who prefer flexibility with cash and don’t want to be stuck in loyalty programmes or worry about expiry dates
- Those who don’t spend much and cannot justify the time and money required to accumulate miles or reward points
- Those who prefer a hassle-free experience as air miles/rewards cards require monitoring, converting and redeeming
Cash Rebate Credit Cards
A simple breakdown of how cash rebate credit cards work is as such:
- An item costs $100
- I am using a card with 5% cash rebate.
- The $5 rebate is “stored” in the credit card.
- One can charge his purchase to the $5 rebate in the card for his next purchase.
Pros of cash rebate credit cards
- The cash rebate is ultimately money that can be used to purchase multiple things
- The cash rebate is directly back to the credit card account, hassle-free.
Cons of cash rebate credit cards
- To maximise cashback there is usually a list of requirements to meet which can include minimum spending on certain categories per month.
- There is usually a cap to the amount of cashback one can receive
- As the cash rebates are stored in the credit card, it is important to monitor the amount that is accumulated and also to remember to spend the rebates.
Who should apply for a cash rebate credit card?
- Those who prefer flexibility with cash and don’t want to be stuck in loyalty programmes or worry about expiry dates
- Those who don’t spend much and cannot justify the time and money required to accumulate miles or reward points
- Those who prefer a hassle-free experience as air miles/rewards cards require monitoring, converting and redeeming
Check out our Beginner’s Guide to Cashback Credit cards for a more detailed explanation of cashback credit cards.
Read more
Air Miles Credit Cards
A simple breakdown of how miles card workĀ is as such:
- An item costs $100
- I am using a credit card forĀ air miles
- $100 is charged to my card
- Miles/points are credited to my card account and subsequently your frequent flier membership thereafter (eg. Krisflyer miles) to be redeemed for flight tickets
In short, one is rewarded with air miles for the amount spent on the miles card.
Pros of air miles credit cards
- The value of miles is usually higher than that of a cashback credit card
- There is often, no cap limit to the maximum amount of miles one can accumulate
Cons of air miles credit cards
- Miles can only be spent on travel-related items such as air tickets or rewards but at an abysmal rate
- Miles rate and value change from time to time
- There is usually an expiry date for miles (3 years for KrisFlyer Miles)
- There are usually conversion fees to change your points into miles (unless you use a KrisFlyer card)
- You’ll have to learn how to play the miles games which include knowing the best way to earn miles and redeem them to get the most out of your miles
Who should apply for an air miles credit card?
- High spenders and frequent flyersĀ as it will be easy for you to accumulate miles and redeem them for flights
- Those who have a big-ticket purchase coming up and want to get the most value out of it
Check out The Ultimate Guide to the best Air Miles Credit Cards for a more detailed explanation of miles cards.
Rewards Credit Cards
A simple breakdown of how rewards for credit card workĀ is as such:
- An item costs $100
- I am using a credit card with a certainĀ rewards points system (usually a standard rate)
- $100 is charged to my card
- Rewards points are credited to my card account
- One can go to respective merchants to claim the reward.
Pros of rewards credit cards
- At times, the value of rewards points can be higher than the cash value
- The flexibility of choosing between rewards, cash rebates or miles depending on the card
- Possible offers or gifts exclusively for members under the rewards points system
Cons of rewards credit cards
- Reward redemptions are usually restricted to merchant partners
- Rewards points may have an expiry date
Who should apply for a rewards credit card?
- High spenders as it will be easy for you to accumulate points and redeem them for rewards
- Those who prefer to have a choice between miles or cashback as some cards let you redeem your points for cash rebates or air miles.
Conclusion
Now that you know what the four main types of credit cards are, go forth and seek out the best credit cards that suit you! If you need help, don’t be afraid to ask a question on the Seedly Community and check out our SeedlyReviews for real user reviews on the credit cards in Singapore!
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