If you are shopping around for a new credit card, you are probably starting out by asking what the best credit card in Singapore is. When you Google "best credit card in Singapore," you'll likely get a few results suggesting a few different cards. However, what you probably don't realise is that the concept of the "best" credit card is a myth, that there is no such thing as "the best credit card" for everyone. Unlike most consumer products like smartphones, there isn't one specific card that is the ultimate best credit card in the market. Instead, what would the best credit card for you depends heavily on your financial circumstances.
To put it another way, what you should be searching for is "which best credit card for me." Your choice of credit card should depend heavily on how much money you spend and what you tend to spend it on. Let us demonstrate how this works out with real life examples.
Why Your Spending Pattern Matters
What credit card you should choose should depend first on how much money you spend. For example, my friend Robert makes S$50,000 a year, and spends about S$2,000 on his UOB One Card on a monthly basis. UOB One Card is a great cashback card that provides up to 5% cash rebate for all of your expenditures, plus some other benefits like discounts on petrol. Based on Rob's spending level, this translates to about S$1,200 of cash rebate annually, which nets out to S$2,207.4 in rebate over 2 years after subtracting S$192.6 of annual fee (which is waived for 1 year). While this may seem great, one should wonder: what if Robert spends less money?
Because UOB One Card requires at least S$2,000 of monthly spend to qualify for the 5% rebate, anything less would only earn maximum 3.33% of flat rate cashback. This means that my other friend Henry, who only spends S$1,000 on his card every month, can only earn S$607.4 in net cash rebate over 2 years if he uses the UOB One Card. In this case, Henry may have been better off by using a card like OCBC 365 Card, which earns cash rebate and waives the annual fee for anyone who spends S$10,000 per year on the card. To be specific, OCBC 365 earns 24% on petrol, 3% on online shopping, up to 6% on dining and 3% on groceries, among other things.Comparing UOB One Card and OCBC 365 Card's Benefits
Let's now assume that my third friend Tom is a foodie who loves to eat well. However, he doesn't care that much about traveling, shopping or entertainment (i.e. bars, karaokes, etc.). Therefore, he spends about 60% of his monthly budget on dining and groceries, while Henry only spends 35% of his spending on these two categories. In this case, Tom should prefer to use Citi Cashback Card over using OCBC 365 Card, since Citi Cashback card earns 8% cash rebate on all of his dining and grocery bills.Comparing OCBC 365 Card and Citi Cashback Card's Benefits
How You Redeem Your Benefits Matter: Miles vs Cashback
There are many other factors besides your spending patterns that you must consider before choosing the right credit card. For instance, you may want to go for an air miles credit card instead of a cash back carf if you tend to travel frequently. This is especially so for people who like to redeem their miles for business class or first class seats. Our study has shown that 1 mile can be worth up to S$0.08 for longer and more expensive flights, compared to S$0.01 conversion rate for economy flights.
Let's consider our example of Robert again, who spends about S$2,000 per month on his card. If he used a Citi PremierMiles Card, he could be earning about 110,920 of miles over 2 years, plus additional savings on petrol, according to our calculations. This is because Citi PMV card awards 1.2 miles for every S$1 you spend locally, 2 miles for S$1 you spend overseas, 15,000 miles for customers who use the card within the first 3 months, and another 10,000 miles when you pay the S$192.6 of annual fee to renew your card. It can also earn 14-15% discounts on petrol in Singapore. If you were to convert the 111,000 miles you earn at a S$0.03 to 1 mile rate (i.e. short-haul business class seat), that's worth significantly more than the cashback Robert would earn on UOB One Card even after subtracting the annual fees. On the other hand, if Rob used his miles at a S$0.01 per mile rate, or never redeemed his miles at all, then UOB One Card would be the better deal.Comparing UOB One Card and OCBC 365 Card's Benefits for Someone Who Spends S$2,000 per Month
Other Factors You Must Consider
Besides the factors we discussed above, there are other quantifiable qualities like annual fee waivers that are important. For instance, if you liked Citi PMV card but are hesitant to pay the hefty annual fee of S$192.6, then DBS Altitude Card could be a decent alternative option. Conversely, if you liked OCBC 365 card but are willing to pay a higher annual fee for better benefits, POSB Everyday card is a must consider.
Lastly, there are intangible benefits like free airport lounge access or complimentary travel insurance that you might find to be important. The value of these perks are very difficult to quantify, but that doesn't mean that they should be ignored when choosing a card. If you are like me and travel frequently for business, getting a short-break at the airport lounges can sometimes be a difference between life and death. However, cards that provide benefits often tend to come with a relatively high annual fee without waivers. This just the kind of tradeoff you get when you are choosing between Citi PremierMiles Card and DBS Altitude Card. Therefore, one must often choose between paying annual fees and forgoing additional perks that are valuable for some, but not everyone.
When looking for the "best credit card," it's extremely important to keep in mind how you spend your money and what kind of rewards you care about. As you can see from our calculations above, picking the right card given how you spend your money can result in significantly greater benefits over a period of few years. However, doing this can be rather complicated because there are over a hundred credit cards to choose from with seemingly incomparable characteristics. If you need further help in your card shopping process, our team at ValuePenguin has painstakingly analyzed each and every card in the market to facilitate your search. You can check out our recommendations at ValuePenguin's credit card analyses.
The article Why This Credit Card Myth is Costing Singaporeans Hundreds and Thousands of Dollars originally appeared on ValuePenguin.
3 Things to Consider When Choosing Your Second Credit Card
There's something to be said about loyalty when it comes to family and friends. When it comes to credit cards, however, there's not much to be said whatsover: according to MasterCard's global report, Singaporeans had about 3.9 cards per cardholder as of 2014.
You’re not obligated to stick with any credit card through thick and thin. In fact, you’re probably better off if you don’t. Getting a second card that fits your spending habits can earn you more rewards or save you on interest. But how should you decide if you should get a second credit card, and how should you pick it? Below, we walk you through the major consideration points so you can best prepare a set of cards that maximise rewards for ever dollar you spend.
When to apply
There’s no perfect time to apply for a second credit card. As long as your budget can handle spending across a few cards, you should be able to get one. It may causes some minor issues only if you are about to apply for a mortgage, but in most cases you are probably in the clear. It might be an especially good time to apply for a second credit card if you identify with any of the following:
- Your income has increased, and now you have access to better credit card options.
- Your spending habits have changed. If your card offers bonus rewards only on restaurants, for example, and you no longer dine out often, it might be time for a change.
- Your current credit card has a cap on reward you can earn, and you want more rewards or benefits.
- You can comfortably meet the minimum spending requirements of your first card, and still have enough left over spendings that you could be earning better rewards for.
- You’re carrying high-interest debt. Moving your debt to a balance transfer card can save you money on interest.
To be sure, you won't be earning more rewards or save more money just because you get more credit cards. In fact, if you are not careful about how you spend your money and paying down your card balance on time, it could even hurt you. But if you are comfortable with managing your card bills & controlling your spending level, it could be a good time to start looking for a new card.
What to look for
When getting a second card, it is important to consider how a card can complements your spending habits and the credit card you already have. If you plan to pay in full every month, your interest rate won’t matter. Instead, look for a card with:
- Better Rewards Rates than Your Existing Credit Cards
- High Cashback or Miles Awards on Specific Spending Categories like Dining, Groceries, Petrol, Travel, Shopping, Entertainment, Utilities, etc.
- Low or No Annual Fee
- Low or No Spending Requirements
- Low APR (i.e. 0% introductory APR) for balance transfer
Let's see how this works in real life. Mary is an average consumer in Singapore who makes about S$50,000 per year. She currently uses Citi Cashback Card, which earns 8% on her dining and grocery bills every month and another 21% discount on petrol. All you need to do in order to earn this rebate is spend S$888 on the card on a monthly basis, which shouldn't be too difficult to do given that the average spending in Singapore is around S$2,000 per month.
The problem is that this card only helps you save 0.25% on all other expenditures. It also has a monthly cap on the high rate cashback on dining, groceries and petrol of around S$75 per month. If Mary spends about S$700 on dining and groceries every month and earns all S$75 of cashback every month, this means that Mary could earn about S$1,700 on this card over two years after paying the S$192.6 of annual fee (1st year is waived). Could she be doing better by combining Citi Cashback with a different Card? The answer is a resounding yes.
For example, consider combining Citi Cashback card with a ANZ Optimum World MasterCard, which earns 5% cashback on a spending category of your choice, and 1% cash rebate on everything else. If Mary chooses "shopping" as your 5% category for ANZ Optimum World card, that means Mary can significantly increase her savings over 2 years, even after accounting for additional annual fee she has to pay for ANZ Optimum World Card (S$180 per year, waived for the 1st year). This is especially the case because ANZ does not have a minimum spending requirement that Mary needs to meet every month.
Our table above illustrates this scenario in detail. Mary is still spending S$2,000 per month, but she now spends only S$900 per month on Citi Cashback for all of her dining, grocery and petrol needs to meet its minimum spending requirements every month. Among the remaining S$1,100, she uses ANZ Optimum World Card on her shopping needs (S$250 per month), which earns 5% rebate per S$1, and the remaining S$850 for everything else, which earns 1% per S$1. This results in a difference in monthly rebate of S$18.25, and difference 2-year net cash rebate of over S$250 even after accounting for increased annual fee.Difference in Net Cash Back Over 2 Years
Finally, keeping your first credit card open will generally improve your credit. But if you aren’t using that card and it charges an annual fee, or if it’s a secured card and you want your deposit back, ask your issuer about converting it to a no-fee or an unsecured card. If those aren’t options, close it.
Should you get a third credit card?
Two credit cards might be better than one. But will a third one boost your rewards even more? It might not hurt you, but it probably won’t help you much, either — at least not in the long run. In fact, many credit cards in Singapore come with annual fees and require a certain level of monthly spending to qualify for certain benefits like annual fee waiver or extra cash rebate. Therefore, spreading your spending too thinly across multiple credit cards can easily be a loss-making proposition.
Not only that, having many cards increases the chance that their core benefits will overlap. Even if you want to keep applying for cards just to get their sign-up bonuses, canceling multiple cards quickly over and over again just to get rack up points and sign-up bonuses could hurt your credit score as well. As your collection grows, multiple annual fees could eat away at your rewards, and your wallet could become more difficult to manage especially because of different spending requirements and billing cycle.
Keep your credit card collection a lean, mean, benefit-generating machine. Choosing a second card that’s worthy of a space in your wallet is a great place to start. For more information, check out our collection of best credit cards in Singapore. You will be sure to find a few cards that fit nicely with your spending habits and the main credit card you currently use.
The article 3 Things to Consider When Choosing Your Second Credit Card originally appeared on ValuePenguin.