Understanding the caps on monthly reward earnings

Get the best credit cards in Singapore

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One of the biggest benefits of having a credit card is the rewards you can earn from your spending. Whether you’re looking to earn miles, points, or cash back, there’s likely a card that’s right for you. However, there is more to a card than reward rates and annual fees. In order to truly determine the maximum value of a card, it’s essential to understand how monthly income caps work.

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What is a monthly reward cap?

Rewards credit cards Usually offer cash back rewards, points, or miles to cardholders for their spending, but this earning potential is rarely infinite. In fact, the majority of credit cards have a monthly limit, or earning cap, which limits how much cardholders can earn during that time. Income limits are the most common with cash back or discount cards, most likely due to their high reward rates. Acquisition cards that generate points also tend to have limits, although cards that generate miles are distinguished by the fact that they rarely have caps.

It should be mentioned that consumers can still earn rewards even after reaching a revenue cap. The cap simply limits income at higher advertised rates. Once the cap is reached, the additional spending generates the base rate, typically a cash back of 0.3%.

Trade-offs between reward rates and cap sizes

Reward rates and earning caps go hand in hand. Credit cards with high rates usually have lower earning limits, and those with lower rates have higher limits (or no limit at all). The reason for this comes down to the total production of rewards. If a consumer earns 10% cashback, they will accumulate rewards very quickly. In fact, spending S $ 2,000 / month for a year at this rate would earn S $ 2,400 as a reward, a spectacular amount. Because this is not viable for a bank, an income cap is put in place to control the income of consumers. For example, a consumer may be able to earn 10% cashback, but only up to S $ 25 / month.

Example of trade-off between reward rate and cap size

Credit card Reward rate Monthly limit Spend up to the maximum limit Max earnings / year
MB Family and friends 8.0% $ 80 $ 1,000.00 $ 960
UOB A 5.0% 100 USD $ 2,000.00 1,200 USD
HSBC Advance 3.5% $ 300 $ 8,571.43 3,600 USD

As a general rule, the higher the advertised reward rate, the lower the cap, and vice versa (it’s harder to win when rates are low, so there’s less risk in setting a large cap).

Who benefits the most from cards with no income cap

Some cash back credit cards do not have a payout limit. It is not surprising, however, that these cards have some of the lowest reimbursement rates on the market. Typically, unlimited cash back cards offer discounts of 1% to 2% on all expenses, with no separate categories. This is great for people who don’t want to track vendors or type of expenses.

However, these cards are not suitable for the majority of consumers. On the contrary, low rates coupled with unlimited earnings only favor richest individuals. Indeed, with current cards, it takes over S $ 7,000 / month of spending to earn enough to eclipse the highest income caps on the market. People who can reliably spend that much each month will earn more than possible with other limited cards. However, people with lower spending would be much better off with a capped consumer card.

Example: high expenses are required to make unlimited cards competitive

Monthly expenses UOB a card HSBC advance card SC Unlimited Cash Back Card
2,000 USD 100 USD (cap) $ 70 $ 30
S $ 7,000 100 USD (cap) $ 245 105 $
$ 9,000 100 USD (cap) S $ 300 (cap) $ 135

What role reward limits should play in credit card selection

If you’re looking for a credit card, a rough way to estimate the card’s total earning potential is to divide the rewards cap by the redemption rate. This will give you a general idea of ​​how much you will need to spend to get the maximum discount. You can try this on multiple cards and compare. While many credit cards reward different categories of spending (groceries, restaurants, transportation, etc.) with different rates, think about which category you are most likely to spend or do quick calculations for each. While these numbers may not be exact, they will give you a basic understanding of how credit cards can differ when you look beyond their advertised rates. Ultimately, understanding income caps is essential for making an informed decision and should be combined with other considerations such as annual fees, minimum required expenses, etc.

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