Cashback credit cards

When you buy something, you get a percentage of the amount it cost paid back to you. This means cashback is a way of getting money off things you buy – think of it like a discount or incentive. It’s normally a feature of credit cards, but some current accounts also offer cashback.

Cashback is often offered on specific purchases, such as fuel or for bills. But many providers now offer cashback on anything you buy.

If a credit card pays 1% cashback on all purchases, you could earn £50 if your annual spend is £5,000. But make sure you pay your balance off in full each month, otherwise the interest charges will almost certainly outweigh the benefits.

Each time you use the card, you earn a percentage of your spend back in the form of cashback.

For example, if your card pays 2% cashback and you spend £100 in a shop, you’ll earn £2.

This cashback is generally paid annually, though some cards will pay cashback on a monthly basis.

Most cashback cards credit the amount you earned onto your statement, reducing your credit card bill. Some cards send the cashback to a bank account so you can spend it, or let you convert it to points or vouchers.

Reward points can normally be exchanged when you have enough to qualify for a ‘reward’.

Cashback cards come in various forms:

• Some will simply pay a flat rate of cashback, no matter how much you spend or where you spend it.
• Others pay tiered rates of cashback depending on how much you spend. For example, 0.5% if you spend less than £6,000 annually and 1% if you spend more. Be careful this doesn’t tempt you to spend more than you can afford to repay comfortably.
• Some cards offer different rates of cashback depending on where you spend your money. For example, 1% on money spent in supermarkets, 2% on money spent in department stores and 3% on money spent on energy.

If you pay your credit card bill off in full every month, then cashback credit cards can be a great idea. This is because you’re getting rewarded for spending money you would have spent anyway.

If you don’t always pay off your credit card bill in full, then cashback credit cards are not a good choice.

Although you’ll earn cashback on your spending, this will usually be less than the interest charged on your outstanding debt.

Card providers might try to convince you to take out a cashback credit card by coming up with all sorts of scenarios where you’ll earn a small fortune in cashback.

For example, they might use your spending on fuel or lunch at work as examples to encourage you to increase your total spend, and therefore the cashback you could earn, from the card.

The point of this is to encourage you to change your spending habits, and use your cashback credit card, when you might have used cash or debit card.

If you don’t use the cashback credit card, you won’t see the benefits promised to you.

If you’re not comfortable paying by credit card for these things or you worry about getting into debt, avoid taking out a card.

If you have a cashback card, don’t be tempted to spend more just to earn cashback or reward points.

Another thing to bear in mind before taking out a cashback credit card is that you might have to pay an annual or monthly fee for the card.

These usually range from a few pounds a month up to £25 a year for some cards.

It’s important to factor this fee in. Do you only spend a little on your card each month and don’t want to increase spending? Then potentially any cashback you would have earned will be wiped out by the fee.

If you want to earn the most cashback possible, you’ll need to change your spending habits and use your cashback credit card as much as possible.

However, try not to see this as an excuse to spend more than you usually would, simply to earn more cashback.

Always aim to pay off your credit card each month on time, and in full. If you don’t, any money earned in cashback will be taken away by interest owed or fees.