Cashback credit cards

Cashback credit cards offer you the chance to earn cash from the money you spend, by paying you a percentage back or giving you reward points.

What is cashback?

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 reward or incentive. It’s normally a feature of credit cards, but some current accounts also have cashback.

Often cashback is offered on specific purchases, like fuel or for bills. But many providers now offer cashback on anything that you buy.

How does cashback work?

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 will earn £2.

This cashback is generally paid annually, though some cards will pay you your 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 at any point once you have enough to qualify for a ‘reward’.

Cashback cards come in various ways:

  • 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, 1% if you spend more than that. 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. So for example, 1% on money spent in supermarkets, 2% on money spent in department stores and 3% on money spent on fuel.

When cashback cards are a good idea

Money fitness tip

Cashback credit cards are only a good idea if you pay off your bill in full each month, otherwise the interest you'll be charged on the oustanding balance cancels any cashback you might get.

If you pay your credit card bill off in full every month then cashback credit cards can be a great idea as you're getting rewarded for spending money that you would have spent anyway.

If you don't always pay off your credit card bill in full, then cashback credit cards are not such a good choice. While you will earn cashback on your spending, this will be less than the interest charged on your outstanding debt. 

Don’t get taken advantage of 

Card providers may attempt to convince you to take out a cashback credit card by coming up with all sorts of scenarios where you will earn a small fortune in cashback. For example, they may use your spending on fuel or lunch at work to boost your total spend, and therefore the cashback you could earn, from the card.

However, if you normally pay for these things by debit card of cash and don’t intend to change that behaviour, you won't see the benefit in cashback. 

If you’re not comfortable paying by credit card for these things or you worry about getting into debt, you should 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

Money fitness tip

Don’t be tempted to change your spending habits to get more cashback unless you’re sure you can pay off the bill each month.

Fees

Another thing to bear in mind before taking out a cashback credit card is that you may have to pay an annual fee for the card. These usually range from a few pounds a month up to £25 a year paid annually for some cards.

Factor this fee in. If you only do a little spending on your card each month, and don’t want to increase that spending, then it may be that any cashback you would have earned will be wiped out by the fee.

Your spending habits

If you want to earn the most cashback possible, it can make sense to put all of the spending you usually do each month onto your credit card. However, you shouldn’t see this as an excuse to spend more than you usually would, simply to earn more cashback.

That extra cashback is irrelevant if you are unable to pay off the credit card bill each month as it could easily be outweighed by interest charges. Use our Credit card calculator to see how long it would take to pay off your outstanding balance.

The golden rule of cashback credit cards

Always pay off your credit card each month on time and in full, otherwise any money earned in cashback will be taken away by interest owed or fees.

Last reviewed: 21/01/2019

This content has been provided by the Money Advice Service