Singapore's financial institutions are very active in terms of introducing new products to lure customers away from their competitors. For example, insurance companies have been introducing new telematics schemes to use technology to help consumers save on their car insurance premiums. Similarly, banks have been introducing new rewards credit cards to the market to increase their market shares. Many of these new products offer great value propositions to consumers. However, consumers shouldn't blindly apply for all of the newest additions to the market just because they sound attractive. In fact, going from card to card can actually be a harmful exercise if you don't do it carefully. Here, we discuss a few things you should consider before applying for the newest credit cards in the market.
What Card You Get Depends on Your Spending Pattern, Not New Features or Sign-On Bonuses
When considering whether you should apply for that newest card in the market, you should first consider how it fits into your spending pattern. You should have a rough idea of how much money you tend to spend per month, and if your expenditure is concentrated in any particular area like dining or shopping. These two factors impact how well you can benefit from a particular card much more than the sign-on bonuses.
Let's consider HSBC Advance Credit Card, one of the newest additions to the market. Since it changed from a miles credit card to a cash back credit card, it has garnered quite a bit of consumer interest with a 3.5% flat rate cash rebate for HSBC Advance customers that spend more than S$2,000 per month. If you already own a card like UOB One Card that provides up to 5% cash rebate per month for those who spend at least S$2,000 monthly, whether you should apply for HSBC Advance Card depends on how much money you actually spend every month. Because UOB One Card's rebate is capped at S$100 per month while HSBC Advance Card's is capped at S$125, UOB One Card works better for people who spend less than S$2,850 per month while HSBC Advance Card works better for those who spend more than S$2,850 per month. Therefore, UOB One Card Users who spend less than S$2,850 would actually be better off by keeping their card, though people who spend more should be actively seeking out a new deal like HSBC Advance Card
How Much Do Sign-On Bonuses Matter?
One argument against our case could be that sign-on bonuses can make such a calculation less relevant. Why not just sign up for a new card, collect the bonus cash rebate or miles, and cancel the card? There are two main reasons why such a thought process can be misguided.
First, often, these bonuses aren't big enough to offset the potential opportunity cost that they create. For instance, our example pictured above implies a difference of S$300 in total rebate earned over 2 years between the two credit cards we mentioned. A typical cash bonus of S$180 isn't big enough to offset this kind of difference. Not only that, merely signing on for a rebate and cancelling the card immediately prevents you from actually benefiting from deals in the future that actually be the best fit for you. This is because most promotions are limited to new customers who haven't had a relationship with a particular bank in the last 12 months or so.
Secondly, many promotional bonuses entail certain level of minimum spending requirements. If you stretch your budget just to satisfy these requirements and earn sign-up bonuses, you can be troubled by the overwhelming credit card debt that comes with a +25% APR.
Therefore, you should treat sign-up bonuses as what they are: a cherry on top bonus for getting something that is already great for you. They are nice addition to the value proposition of a card if the card itself fits your budget and spending pattern well. Applying for a new card just for the sake of its bonus can have some hidden costs that you can't easily anticipate ahead of time.
What If Your Existing Card's Terms And Conditions Changed?
Sometimes, the "newest" card in the market can actually be just a rebranded card that you used to have. Banks can and do change their terms and conditions time to time. But does this mean that you should just abandon the card every time it changes? The answer is no. You can use the same process we just described for assessing a new card to determine if you cancel or keep your existing card if and when its T&C changes. If the new set of rewards and fees work well for you, you should consider keeping it. If not, it would be wise to look for alternatives.
In fact, many cards that have gone through a significant change in the recent years have actually changed for the better. For example, Maybank Horizon Platinum Card was rebranded to Maybank Horizon Visa Signature Card with significantly higher rewards rate for a slightly higher spending requirement to qualify for an annual fee waiver. Similarly, POSB Everyday Card raised its annual fee in exchange for much higher dining rewards. As for HSBC Advance Credit Card, which originally was a miles credit card, it's still one of the best no-fee cash back cards in the market. For you to decide whether or not to keep these cards, all that matters is that their current benefit and fee structures nicely match your individual spending preferences.