The Perils of Cashback
We at moneystepper are big fans of getting cashback and rewards:
However, its important to be careful and work out what we are actually getting. Often, the “rewards” may not be quite as valuable as they first seem.
Shaun Waksman, who blogs on personal finance at Coupon Roller, looks at some of the potential downsides of cashback and rewards.
Cashback & Reward Promises
We’ve all seen the promises. The credit cards. The websites. The loyalty programs. All offering cash back in some form or another. But not every program out there is all it’s cracked up to be. Here are some issues to be aware of while playing the cash back game:
“Rewards” might not always mean real money in your bank account. Cashback programs often give you a credit or gift cards at stores, or even actual products. Sometime you get to choose between cash or other types of rewards. Have a close look at what you’re being offered before starting to use one program or another.
Quarterly / annual payments: Most programs have set dates on which payments are made. This can been as infrequent as once a year. This policy might make it easier for the cashback program’s accounting team, but it means you often need to wait a while until you get your money.
Minimum payouts can range between $5 and $50. That means that if the cashback you’ve accrued doesn’t reach the minimum sum, you’ll need to wait until the next payment date. The money doesn’t disappear, but you’ll need to keep building up the cashback and pass the minimum payout in order to finally get paid. If you stop using the program, the money will, indeed, disappear. And that’s what many of the programs count on.
Wait / Cool-off Periods mean that you don’t get the cashback until a certain period of time has transpired since you made the purchase. This is in order for the program to avoid a situation where you return the merchandise after pocketing the cashback.
Fees might sometimes be charged by the program. These can be registration fees or even monthly charges. The fee might be charged to you, out of pocket, or might simply come from the first $5 of cashback earned each month or each year.
The lure: Weekly or daily e-mails encouraging you to buy things, seemingly at a discount, along with the promise of cashback. But beware. Do you really need the things you are about to buy? If, all in all, the lure of cash back leads you to purchase items you don’t really need and those you weren’t planning to buy anyways, you’re not saving money. You’re wasting money.
Credit Card Cashback Programs
And specifically for the Credit Card cashback programs:
“Instant Bonuses” often come with a catch. Cashback credit cards that give you a large sign-up bonus often require you to spend minimum amounts in the first few months. Some of these credit cards won’t give you the bonus until you’ve met this condition. Others may give you bonus initially but might claw it back later.
High APRs: You’ll find more often than not that cashback credit cards carry high Annual Percentage Rates on interest. If you always pay your credit card bill in full, this shouldn’t bother you. But if you are like most consumers today, pay attention to these numbers. Beware the 0% introductory APR lures. Those revert to high APRs within 12-24 months.
Credit card fees for cashback cards may be high: $100 per year or more. Take a close look and see if it makes sense for you, with your own personally spending habits, to pay these fees. Are you sure you’re going to come out ahead of the game?