Potential downsides of cashback and rewards

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The Perils of Cashback

We at moneystepper are big fans of getting cashback and rewards:

Quidco Review

Reward & Cashback Credit Cards

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

Potential Downsides of Cashback

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?

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6 thoughts on “Potential downsides of cashback and rewards

  1. I just wrote about a cash back program, Top Cash Back, myself. I’m still waiting for one of my purchases to “credit” and the other to “post”. It’s definitely taking longer than I thought! I’m still going to give this program a try for a few other purchases, but it’s not at exciting as I thought it was going to be.

    • I highly recommend TopCashback, as have been using it for probably 3 years now. In that time, I’ve had over £600 in cashback. Yes, you need a little patience to get the cashback -0 sometimes, it can take months but you do get it in the end. I only buy stuff that I was going to buy online anyway, such as insurance for my car, home, holiday etc – such purchases pay a lot.. I never ‘browse’ the website, for fear of being tempted to shop for the sake of getting cashback. A friend of mine has had over £1000 cashback as she buys all her cat food and cat litter online and her boyfriend buys all his protein supplements via the website – it all adds up.

      Keep at it, it’s worth it in the end.

  2. We have used the Citi Dividends rewards card for years, and it works great. I’m not even sure they offer it in the same format to new customers, but we get 1% back on all purchases, and 5% back on rotating categories that change every three months. Once you have at least $50 in rewards accumulated you can request a check. We earmark the money and it’s paid for all of our TVs and electronics upgrades over the past few years.

  3. Topcashback is a favourite of mine I renew everything through there or Quidco. I’ve earned about £500 in the last year from TCB. The offers some times can be tempting and the constant emails are annoying.

  4. We have a good one that has some of the drawbacks you mentioned but we still come out ahead.

    Benefits: Cashback (I only want true cashback cards) with high rewards rates – 4% on gas and groceries (which are our needs), 2% on recurring bills (cell phones), 1% on everything else.

    Drawbacks: Annual fee of $129 ($99 for card + $30 for second card), payment only once per year

    Impact: We have $360 accrued so far to be paid in Nov. Net minus the fee is $231 so far. I expect we will reach $300 by November.

    It only works well if you can maximize what you put on the card including recurring bills, all groceries and gas and other purchases. We basically never use cash or debit anymore.

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