How To Choose The Right Cashback Credit Card - Benefits Of Cashback And How Credit Card Companies Make Money By Offering Cashback!
If you haven’t chosen the right credit card, you may be paying higher charges in interests and fees which could otherwise be easily avoided. Today, we are going to focus on how to choose the right cashback credit card and enjoy the benefits on everyday purchases.
If you prefer to pay off your credit card balances at the end of each month (which is the ideal model) then you should apply for a cashback credit card which offers you cash and rewards each time you spend!
How credit card companies make money –
When you spend money on a credit card with any merchant which can be your local supermarket, clothes retailer or a restaurant, your credit card issuer (Mastercard/Visa/Amex etc)
earn a transaction charge which is in the region of around 5 – 8% approximately. As a result, it is quite clear that more money you spend with your credit card, your card issuer makes more profit through transaction charges.
What are Cashback credit cards –
Credit card companies have come up with an way to entice their customers to spend more so that they can earn more transaction charges. They realised that by sharing part of their transaction charges with their clients in forms of Cashback, they can actually increase the number of transactions and clients too. This is why you see many credit card companies offering up to 6% Cashback on your purchases.
How do Cashback Credit cards work –
Cashback amount can range anywhere between 1 % and 6% as currently on offer in the credit market. For example if you spend $/£300 in any given month on a credit card which offers 3% cashback on purchases then the amount you are likely to receive back in cash is:
300 x 3% = 9
Although the Cashback amount you are entitled to receive may sound small, but it can easily add up! Particularly when you put higher value transactions such as if you pay for your holiday which costs $/£2000 then the cashback you may be entitled to is in this case:
2000 x 3% = 60
What to look for in a cashback credit card –
Some credit cards come with introductory offer with a higher cashback rate for first 1 to 3 months. Although, the cashback rate for the introductory period may sound alluring, it is a good idea to check the standard cashback rate that will be applicable after the introductory period.
There may also be a minimum spend or minimum number of transactions you will be required to make in order to be eligible for any cashback. Therefore, reading the small prints for terms and conditions is always a good idea so that you can avoid any terms that may be too difficult for you to meet in order to qualify for the cashback.
Some cashback offers may also include a ‘thank you’ bonus every year that entitles you to a higher cashback for a selected month on 5 highest purchases. Any extra bonus is always a plus point, so keep an eye out for the best bonus deals that may accompany your cashback credit card.
Charges associated with cashback credit cards
Some cashback credit cards may come attached with an annual charge. This again needs further assessment as you need to work out the amount you will be spending throughout the year and whether the cashback amount you receive back is higher than the annual charges applicable to the credit card. If you think you will not be spending a significant amount on your cashback credit card, it may not be worthwhile at the end after paying the annual charges.
So now you know how credit card companies make money out of their clients, why they offer cashback credit cards, how cashback credit cards work and what to look for in a cashback credit card. We wish you all the best in making the most out of your credit cards and if you have any questions then do get in touch and we will be more than happy to assist you and answer any questions you may have. Do not forget, you can also submit your own articles about your personal experience in the world of credit which may help our readers
