In fact, use one for all of your spending (where possible) and you could pocket hundreds of pounds a year.
What is a Cashback Credit Card?
A cashback credit card is a specific type of credit card designed to encourage you to spend by offering you rewards.
For every pound that you spend on these credit cards the credit card company will give you money back. The best cards pay back around 5% of your spending for the first three months, but most of the cards average a cashback rate of 0.5% to 1.5% on all purchases in the long term.
With the average household spending £2,100 on their credit card every month, getting a cashback card could stand to earn them around £380 a year.
But they won’t offer you a steady cash-flow. Your earnings are totted up and paid to you once a year, usually on the anniversary of when you first received the credit card.
Why the Free Money?
The credit card companies aren’t giving you money for nothing. They’re hoping that you’ll spend on their cashback credit card to earn some money but then not clear your balance in full. Then they can then pocket far more in interest than you will ever earn in cashback.
So, only use a cashback credit card if you know you can pay off the balance in full each month. In order to make sure you do this we recommend that you set up a direct debit.
Should I Get a Cashback Credit Card?
Get a cashback credit card if:
- You can repay your credit card balance in full each month.
- You prefer the flexibility of cashback rather than earning points on a potentially more rewarding rewards card.
Don’t get a cashback credit card if:
- You are planning some big purchases and will not be able to clear your balance in full. Go for a 0% purchase card instead.
- You are paying interest on existing credit card debt. You’ll save far more money if you move your existing credit card debt to a 0% balance transfer card than you could make by spending more on a cashback card.
Cashback vs. Rewards
A cashback credit card is another type of rewards card except it offers the simplicity of cold, hard cash rather than rewards points. But that doesn’t mean it is always the best option.
If you fly a lot, a credit card linked to an airline rewards program could end up being more useful than a cashback credit card.
Also, if you are particularly loyal to one supermarket brand their reward credit card could be more beneficial for you.
Will I Be Accepted for a Cashback Card?
As with other credit cards the best cashback deals tend to be reserved for people with the best credit records, but if your credit rating isn’t perfect you could still be accepted for a card with a slightly lower rate of cashback.
Don’t just apply at random until you are accepted though, the more times you are rejected the less chance you have of getting a card as the failed applications count against you on your credit record.
Our advanced credit matching technology can help you get accepted for a credit card. Enter a few details and it will show you the credit cards you are most likely to be approved for – and those that might reject you.
How to Get the Most from your Cashback Card
Know Your Card
Different cards offer different cashback rates. Some offer a high introductory rate that falls away after a few months, while others offer higher rates of cashback on certain forms of spending. So make sure you get the card that best matches your shopping habits.
Don’t Withdraw Cash
Not only will any cash withdrawals you make be exempt from cashback, you’ll also start paying interest on the withdrawal from the minute the money is in your hands. The interest may be so large as to cancel out your cashback returns.
Don’t Go Over Your Limit
Most cards charge a penalty if you breach your credit limit, so go over a it few times and you’ll have paid more in fees than you will earn in cashback.
Don’t Apply for Multiple Cards
It can be tempting once the introductory cashback period has ended on one credit card to apply for another rather than settle for the lower long-term cashback rate. But numerous credit card applications can damage your credit rating and you may find yourself failing to get credit as a result.