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Credit card Guides
Cashback credit cards
Updated: Tuesday 29 November, 2011
By Martin Fagan
If you’re financially disciplined and fancy being rewarded every time you use your credit card, a cashback card could suit you.
Banks make millions of pounds every year from the interest that people pay on their credit card debts but, if you play your cards right, you can actually earn money every time you spend.
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Cashback credit cards pay the cardholder back a percentage of any spend on the card, sometimes for a set period of time or up to a certain monthly or annual limit.
Before you sign up for a cashback card, you need to check the details carefully. Some cards are obviously more attractive than others, with a lower annual percentage rate (APR) and a better rate of cashback, but the way you use your card will also help decide on which one you go for.
Also, it’s important to remember that cashback cards are only a good idea if you can repay your bill in full each month. If you fail to do this, the interest charged will easily eclipse the cashback you’ll earn and you’d be substantially better off choosing a card that minimises the interest rather than maximises the cashback.
- What are cashback credit cards?
- Are they better than other reward cards?
- Advantages of cashback cards
- Disadvantages of cashback cards
- What cashback cards are available?
- Which cashback card is best for me?
What are cashback credit cards?
Cashback credit cards do exactly what they say on the tin - they give you cash back on your spending. Most have a promotional period where you can earn a higher rate of return - some as much as 5% - so the more you spend, the more you’ll get back, especially during the promotional period.
Are they better than other reward cards?
Other types of reward credit card repay you in points or money off a product offered by your lender - like the Tesco ClubCard credit card or Airmiles credit cards. These points schemes can be difficult to understand, and often have low returns - you’ll need to collect a lot of points before you can get anything for free. But with a cashback card you know exactly how much you’ll get back, and because its cash, you can spend it wherever and on whatever you want. You’ll either get a cheque once a year or, becoming increasingly prevalent, your monthly cashback total will be deducted from that month’s statement.
Advantages of cashback cards
If you use a cashback card for all your day to day spending, you can rack up a decent amount of cashback each year. Some cashback cards also carry other benefits, such as discounts at selected retailers or gift vouchers.
Disadvantages of cashback cards
Cashback cards tend to have higher than average APRs. Therefore it’s vital to pay off your bill in full each month - otherwise the cashback you receive will be outweighed by the interest you’ll pay. Some cards also have strict rules and if you break them you won’t get your cash back. For example, with certain cards, if you don’t make at least your minimum payment in any particular month then you won’t get any cash back for that month’s spend.
Furthermore, you might not get cash back on all your spending on the card. Cash withdrawals, for example, are normally excluded and you’ll be charged interest from the moment you withdraw the cash.
What cashback cards are available?
Deals on cashback cards change fairly often, with the majority of cards offering a higher cashback rate for a set promotional period. Some cards also offer a higher rate of cashback when the card is used for buying petrol or when buying goods in a supermarket.
Most card issuers offer them - the one you pick will be the one that best suits your financial circumstances and spending habits - but how do you pick the one that’s right for you?
Which cashback card is best for me?
Even when you’ve got all the rates set out on paper, it can still be difficult to work out which is the right cashback card for you.
The best thing to do is look at where you spend your money. As we’ve seen, some credit card providers offer cards which pay higher cashback rates on supermarket or fuel spend so, if you spend a lot on food or petrol, look out for these offers.
Watch out for cards that hit you with an annual or monthly fee as, however small it looks, it will impact on your cashback.
For example, if your card comes with a £1 monthly fee and your rate of cashback is 1% a month, if you only spend £100 a month on the card the fee will cancel out the cashback you receive and if your spend is below £100 a month, you’re actually paying the issuer for the privilege of holding the card.
You shouldn’t automatically dismiss cards that charge a fee, because they might offer a generous cashback rate to compensate, but you should always work out whether the rewards will outweigh the cost.