Cashback credit cards: Cashback rewards losing value

A promise of free cash for shopping sounds like living the dream, right? Canstar’s research reveals spenders risk getting short changed with cash back rewards credit cards.

Cash Back Rewards Credit Cards – closest card to an all-rounder

Cash back rewards credit cards are probably the closest there is to a credit card benefit scheme that pleases all types of spenders. After all, what you turn that cash into is left up to the spender. Receiving money for spending is probably music to the ears of shopaholics, but some number-crunching reveals alternative rewards cards may actually be worth more moolah in the long run. Let’s break it down by comparing the value of cash back rewards with flight rewards.

First up, it’s important to stress that rewards on credit cards do not have a one-size-fits-all formula, so Canstar rates the comparative value of rewards cards for four different levels of spending:

A credit card value approach

  • $12,000/year
  • $24,000/year
  • $60,000/year
  • $120,000/year

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Cash back rewards vs flight rewards

Hair-splitters are banding together right now, preparing to shout out that they can use their cash back from relevant credit card rewards schemes to purchase their flights. You win that point, hair-splitters. But, what if you heard that a flight rewards credit card really does go the extra mile? (forgive the temptation for flight puns). Based on Canstar’s 2016 research on rewards schemes, Canstar researched 45 credit cards from 10 providers, to have a look at what rewards they have on offer, as well as other factors, such as fees.

For example, for a spender who puts $12,000 a year on the plastic, they can get as much as $203.20 in flight rewards. On the other hand, you can only expect around half the return with a general rewards card – $107.72, to be exact. For absolute clarity, Canstar has combined rewards credit cards which offer cash back and those that offer merchandise rewards.

Let’s take a closer look at how cash back rewards credit cards stack up:

Rewards Profile Annual Spending ($) Average Annual Fee Average Purchase Rate (p.a.) Average Reward Return
Flight Rewards 12,000 $74.50 19.95% $203.20
Flight Rewards 24,000 $74.50 19.95% $327.75
Flight Rewards 60,000 $148.33 20.95% $779.93
Flight Rewards 120,000 $270.00 18.95% $1,846.60
General Rewards 12,000 $32.50 19.97% $107.72
General Rewards 24,000 $105.00 19.47% $292.29
General Rewards 60,000 $226.67 18.28% $829.24
General Rewards 120,000 $226.67 18.28% $1,788.47

Source: Canstar. Products assessed for 2016 Credit Card Rewards Star Ratings.

What’s the reason behind cash back rewards credit cards rate of return?

In recent years, some cards have been increasing the redemption rate for cash back rewards – basically meaning you have to spend more in order to be eligible for any cash back. To an extent it makes sense, of course, because financial institutions can purchase merchandise and shopping vouchers at wholesale rates. This means they can offer more benefits to the customer, while they also protect their bottom line.

Cash Back Rewards: Should you bother?

Should you both with cash back rewards

The extreme flared jeans trend is one person’s “super sexy” style statement but the start of another person’s recurring fashion nightmare. Consider this your visual representation of credit card rewards schemes; one form will not suit everyone. Sure, you might not get as great a return on cash back rewards, but if you’re not even interested in flight rewards, then that probably doesn’t concern you. If you are comfortable doing most, or all, of your spending on your credit card, so you can maximise your cash back rewards, then it could be ideal for you. As long as you are aware that cash back rewards credit cards won’t always give you the same value rewards, then put on those flared jeans, or Elvis Presley get-up, or whatever it is you want to express yourself. Some consumers will always prefer the convenience of a dollars-in-hand reward so, the message? Keep yourself informed about what your financial institution is offering.

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