How to Calculate the True Cashback Yield or Interest Rate Your Bank is Offering

Does the Trust Card really give 21% rebate, or does the UOB One account truly give 3.6% p.a interest? Math is hard/boring and marketing departments know this, which is why numbers are used to great effect to influence the decision making process, particularly when it comes to financial products.

A round “10%” sounds better and more attractive than 8.3333333% of course, and that’s probably why the marketing guys went with the bigger number. To get the best possible value for ourselves, we need to know how to cut through the marketing fluff.

Calculating the earn rate of cash back cards

The best way to calculate your effective earning from cashback cards or savings accounts that try to obfuscate the true earn rate would be to use this simple formula:

effective cashback rate = the amount you earn ÷ the amount you spent × 100 

For instance, UOB EVOL advertises an 8% earn rate when you use the card to pay for online and mobile contactless transactions. You require a minimum spend of $600 to get this rate, but the maximum cashback, however, you can earn on each of these categories is $20.

That makes a total possible $40 of cashback earned on $600 of spend which is some 6.67% of cashback ($40 ÷ $600 × 100 = 6.67% rounded to 2 decimal places) . It’s by no means a shabby rate, but it’s certainly not 8%. 

And of course, if you spend beyond the cashback caps, your effective cashback rate starts to drop even further.

Cards with minimum spends and cashback caps are particularly fond of exaggerating the cashback rate that can be earned… and I should possibly compile a fuller list, but they include: UOB EVOL, UOB ONE, Trust Card…

Calculating the effective interest rate of savings account

DBS Multiplier advertises “up to 3.50% p.a.” which isn’t technically untrue, but this 3.50% p.a. rate is given only on the next $50,000 after your account is filled with $50,000 (assuming you meet all the conditions). The first $50,000 gets a maximum of 2.50% p.a. This means that a balance with $100,000 earns 3.0% p.a. overall.

Also, because the interest is given in a “top-heavy” manner where the next $50,000 is given more interest that the first $50,000, every dollar you remove from the next $50,000 decreases the rate further from the 3.0% p.a:

BalanceAnnual InterestEffective Interest Rate
$100,000$3,000.303.00% p.a.
$80,000$2,299.502.87% p.a.
$60,000$1,598.702.66% p.a.

The easy way to calculate your effective interest rate would be to use the bank’s calculators, if possible, to get the total interest, then use the formula:

effective interest rate = annual interest earned ÷ balance × 100 

There is an alternate formula that I’ll illustrate with UOB One Account which gives interest by numerous tiers:

Account Monthly Average Balance (MAB)Spend min. S$500 on eligible UOB Card AND credit your salary via GIRO

Total interest
First S$15,0001.40%
Next S$15,0001.40%
Next S$15,0001.50%
Next S$15,0001.50%
Next S$15,0002.50%
Next S$25,0003.60%
Above S$100,0000.05%

For such a configuration, you can also use the following:

Amount in Tier 1/Total Balance × Tier 1 Interest

+

Amount in Tier 2/Total Balance × Tier 2 Interest

+

Amount in Tier 3/Total Balance × Tier 3 Interest

+

For a $50,000 balance, for instance, you would input the following numbers:

15,000/50,000 × 1.4 + 15,000/50,000 × 1.4 + 15,000/50,000 × 1.5 + 5,000/50,000 × 1.5 = 1.44% p.a.

Don’t be fooled by marketing…

For those who are part of the Telegram group, you might realise that this post came to be because of how there are people who think that UOB One still gives 10% cashback on selected merchants like Shopee, Grab, or Dairy Farm merchants. I thought so too at first, because it was indeed the case for a while, giving $600 of cashback each time you spend $2,000 each month for three consecutive months on those merchants. It was only on closer inspection we realised that the the overall cashback cap was set at $500.

The maximum cashback rate you’d ever get from this card would hence be 8.33% ($500 ÷ $6,000 × 100), and that assumes you spend at least $1,500 per month on selected merchants three months consecutively. If you spend less than this amount on the bonus merchants, your effective cashback rate decreases even further, much like how every dollar missing from your DBS Multipler’s “next $50,000” decreases your effective interest rate. It is now simply impossible to get 10% cashback from UOB One, selected merchants or not.

… and don’t mislead people

Saying that the UOB One still technically gives 10% cashback is as useful as saying the Trust Bank Credit Card is technically a 21% rebate card (spoiler: it really isn’t in reality), or that the DBS Multiplier technically gives 3.50% p.a. interest (well, see above).

“Do I pick the Citi Cash Back card for my grocery spend, or the UOB EVOL instead? Both seem to give 8%!” Parroting the marketing numbers is meaningless and even misleading to people who are not as savvy or have as much time to study the numbers.

If a card gave 100% cashback with a minimum spend of $10,000, and a cashback cap of $10, does it “technically” give 100% cashback? While extreme to drive home a point, your answer to this simple question should reveal whether the UOB One is a 10% card or not.

Otherwise, do hit me up for I have a 100% cashback solution for your spend*^#1

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