Fixed vs Variable Rewards: Which Type Of Credit Card Should You Get?

 Fixed vs Variable Rewards: Which Type Of Credit Card Should You Get?

This is easily the most common question people ask me. And also the answer, obviously, is: “It depends”.

The first and many real question is – what exactly are your objectives?

Are you curious about getting cashback on your spend? Are you currently interested in turning your spend into flights and holidays? Do you want cards that provide you special “lifestyle” privileges, eg use of clubs, private concierge, illuminati initiation ceremonies?

It is obvious that you should absolutely be utilising credit cards wherever possible. Every time I see someone pay with cash, NETS or perhaps a debit card, I die just a little inside, because that's basically wasted spending. If you're going to spend money, might as well go out of it.

Fixed vs Variable Rewards Cards

Rewards credit cards can be divided into 2 main types:

  • Fixed rewards cards (Cashback)
  • Variable rewards cards (Miles and Points)

Fixed rewards cards, as the name suggests, provides you with certainty. If I possess a cashback card, I know I will return x% of my spend in the form of a statement credit. I may get different percentages based on what group of spending I do (eg groceries could get 3% cashback while fuel gets 5%), however the worth of things i get out of the transaction is bound. $1 is $1.

I'm not a big fan of cashback cards due to the relatively small rebate % along with the multitude of conditions attached. I spell out more issues with cashback cards here, but to summarise:

  • The cashback you can earn is capped each month
  • You have to spend a minimum amount per month to savor the advertised cashback
  • Because of minimum spend requirements, it is not easy to adopt a “best of breed” strategy, i.e. using one card for petrol, one card for groceries, one card for online etc
  • Once you pay an annual fee on the cashback card you're essentially beginning with a net negative position

Variable rewards cards, on the other hand, provide you with their own currency (eg DBS Points) or perhaps an airline's currency (eg Krisflyer miles). Why I refer to this as “variable” would be that the value you get depends on the way you spend it. For reasons which I'll explain inside a subsequent post, the need for a mile depends on what you redeem it for. All things equal, a mile applied towards a first-class redemption is going to be worth more than the usual mile applied towards an economy class redemption.

Of course, because the value you get depends upon how you spend your miles, variable rewards cards need a little more thought and micromanagement than fixed rewards cards. If you're prepared to invest that time, however, the incremental value can be tremendous.

Now, what cards do you need?

Planning To enroll in A New Credit Card This January?

From now till 31 January 2021, you'll receive exclusive cash and vouchers from SingSaver – on top of any perks given by individual banks – when you use our links to sign-up. Some of the cards entitled to the promotion are:

# 1 American Express Singapore Airlines KrisFlyer Credit Card

[SingSaver Exclusive]: $150 Cash for new and existing customers

# 2 American Express Singapore Airlines KrisFlyer Ascend Credit Card

[SingSaver Exclusive]: $150 Cash for brand new and existing customers.

# 3 Citi PremierMiles Visa Card

[SingSaver Exclusive]: $200 vouchers Cash for brand new Citi customers. $30 for existing customers.

# 4 UOB PRVI Miles Visa Card

[SingSaver Exclusive]: $50 Cash for new and existing customers.

Note: If Air Miles cards aren't your cup of tea, you may also take a look at cashback cards.

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