How to make the most out of cashback

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Cashback is maybe one of the easiest promotions to understand. Like its name implies, it’s a way for customers to get cash … back. But how do these programs work? And how can you make the most  of them? How does it differ from a stock-back program? This explainer has you covered. ‍

How does Cashback work ‍

The basic idea of a cashback program is extremely simple. Every time you buy something,  your banking app, credit card company, or whoever you shop with, will give you back a small portion of that purchase. Some providers will pay you different amounts depending on what you buy. For example, at Vivid, we give you 10% back on some popular purchases such as Netflix or Spotify as well as popular grocery brands, 3% on restaurants outside of the EU, and 0.1% on every other purchase.

So let’s say you pay €15 a month for Netflix, €10 a month for Spotify, you buy a game on the PlayStation Store for €40, and buy groceries at Lidl for €35. In total, you’d get €10 back on that.

What is a stock-back program?

Stock-back programs are a relatively new twist on the traditional cash-back formula. Instead of giving you cash for your purchase, you get the equivalent amount in a stock of your choice. So that €10 from above might turn into €10 worth of Tesla stock.

Now, Tesla stock is, at the time of this writing, worth a bit more than €10, so some providers will offer to let your money track the Tesla share price instead. If it rises 5%, so does your investment. Vivid’s program works like that -- you’re not really investing, just tracking a stock price with your money.

These kinds of programs have an obvious advantage in that your money can increase in value, instead of sitting there. If your stocks do well, so do you. The obvious drawback, just like any time you invest in stocks, is they can slide in the opposite direction as well. So your €10 might become €12, but it might also become €8.

The good news is Vivid takes care of the downside risk for you. If the stock goes up, so does your money. If it goes down, you still keep your original amount. So you’ll always make at least €10, or more. ‍

How do I make the most out my cashback program? ‍

Because cashback programs reward spending, it’s easy to spend too much or make unnecessary purchases in order to maximize rewards. But while it might feel good to see the rewards pile up, at the end of the day you’re still left with less money.

The smart way to treat a cashback program is to think of it as a discount on the purchases you already make. If you have regular bills, or purchases you know you’re going to make anyway, such as groceries, Netflix, or others, make those with the provider that offers cashback. Also make sure to check what brands are prioritized! It might be worth it to switch where you buy your groceries or stream your music from if it means getting 10% of those bills back.

If you want to give Vivid’s cashback program a try, sign up for a free account and see how much money you can save.