Should you chase cash back?

WHAT is it about us chasers of rewards, dreamers of discounts, lovers of anything free? Why are we easily lured into the idea of something for nothing, though we know it too well that they are too good to be true?
As a consumer, have you ever asked yourself if every reward you're getting is genuine, that they are there to serve your financial interest at best? Are you sceptical of such "kindness" and the idea of forking over your own money to get those rewards, and if so, what makes you feel that way? Or are you the kind who hardly knows the truth behind what you signed up for?
In Malaysia's competitive credit card market, rewards are the name of the game. Credit card issuers have a goal to make their offer as enticing as possible and this includes the promise of earning cash back for using it. Cash back – an incentive designed to get more people to own credit cards and woo existing users to increase their credit card transactions is becoming Malaysia's favourite credit card feature worth chasing for.
A cash back feature that suits you
The main problem with cash back many fail to notice is when month end comes; you'll find it a struggle to pay off your balance. Why? As you're chasing cash back, you end up making more transactions than you otherwise would, instead of saving them. What you might also have overlooked is that any cash back is converted into interest and that means you actually earn nothing back.
When looking at cash back feature on credit cards, there are four questions you need answers to: How much percentage is offered, what is the cap, what you get cash back for and would this cash back offers provide true benefits for you. Let's take a look at some examples available in the market and see how these questions are important for decision-making.
Credit card X offers 1% uncapped cash back on everything, regardless of total spending amount or swipes. Sounds like a score, doesn't it? But as a consumer, you shouldn't just stop at that. Make calculations and think about how you have to spend RM5,000 only to earn RM50 cash back. Would it be worth it spending that much amount of money only to receive so little back? More importantly, can you afford paying off the balance together with interest by end of month?
Let's also look at credit card Y with a tempting offer of 10% petrol cash back at all petrol stations nationwide. You need to spend a minimum of RM500 per month, inclusive of at least RM300 on petrol in retail purchases to entitle you for cash back. Tempted to spend to get your cash back already? Read on.
The offer is based on tiers, capped at RM12 per month for minimum spending of RM500 to RM999, RM28 (RM1,000-RM2,499) or RM70 (RM2,500 and above). Then, ask yourself, is this offer suitable for you and your lifestyle? Are you spending the stated minimum on a monthly basis? If yes, you might as well just grab this credit card and save extra on petrol. If not, you might need to compare and find a different credit card that suits you better.
Be informed
Rewards like cash back are simply marketing tools to lure even the most experts of us. It's vital for us as consumers to be rational and informed of our options while understanding how the business works to prevent being taken advantage of.
When you're credit card hunting, you'll notice that there are information that might not be readily available for your review at once. Credit card issuers usually highlight the best feature that would make them stand out from their competitors, so your job as a consumer is to seek and enlighten yourself with equally important details that are not made visible.
If you're checking a product's website, be sure to click on every link available to get your information and this includes the Terms and Conditions many of us so often choose to ignore. Call the issuer's customer service hotline to inquire or better still, use free online service from a financial aggregator to help you make comparisons between available cash back credit cards in the market.
Apart from cash back, other reward features like travel insurance coverage, air mile points, even discounts at your favourite golf courses, might provide better value for your money. These rewards might not be a promise of easy money but if you know your lifestyle and interest well, you might as well save more on things that can bring you actual benefits.
Andreas Ghani Weiler is a money saving expert with financial comparison platform, CompareHero, aimed at helping Malaysian save time and money. For more information, go to www.comparehero.my