Earn cash back on everyday spending
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A cashback credit card pays you back a percentage of what you spend on it, usually as a small credit to your statement each month or a lump sum once a year. Rates typically start low, often between 0.25% and 1% on ongoing spending, with some providers offering a higher introductory rate for the first few months. The cashback is only worth having if you clear your balance in full every month; carrying debt on the card means the interest you pay is very likely to cost more than the cashback you earn.
There is a risk of incurring charges if you go over your limit, and interest will be charged on any balance you don't clear in full at the end of the month. These charges are likely to outweigh any saving you make from the card, so it's advisable to only use a cashback card if you're confident you can afford to pay your balance in full each month.
Some cashback credit cards can have high interest rates which can outweigh the benefit of having a cash reward. For example, if you're getting 5% cashback on your purchases but at the same time are paying 20% covering outstanding balance interest payments then you are not getting a good deal. As long as you avoid carrying a balance from month to month, you'll avoid interest charges altogether.
Keep in mind that the 0% interest rate may not align with your normal repayment date and therefore you may end up making an interest payment on the final month of the 0% interest deal. The interest rates on cashback credit cards can be high once the introductory period ends, so it is important to avoid letting the introductory period expire while you still have an outstanding balance on your account.
Also, it is recommended that you set up a direct debit to make managing the repayment of your credit card debt easier and to make sure that you do not miss the minimum payments and incur a penalty for doing so. You may receive penalty charges for missing payments, being late on payments or by exceeding your spending limit, so this is something to be careful of.
Cash rewards can also make the idea of spending money to earn cashback attractive, when in reality you would be saving more money if you simply reduced your spending. This is especially true when different cards have different rates and with some cards the more you spend the higher the cashback percentage you will receive.
Some cashback credit cards also have an annual fee associated with them that can cost anywhere from £25 to £100. The annual fee will shave off a certain amount of the money you get as a cashback, but depending on the cashback rate you're getting, the card might still be saving you a significant amount of money each year. For this reason you shouldn't avoid using a card altogether just because they have an annual fee.
The table below shows illustrative annual cashback at different spending levels and rates, so you can judge whether a cashback card is likely to be worth it once any annual fee is taken into account.
Annual spend | At 0.5% cashback | At 1% cashback |
£5,000 | £25 | £50 |
£10,000 | £50 | £100 |
£20,000 | £100 | £200 |
Cashback cards are one type of reward card: they pay you back in cash rather than points, air miles or vouchers. If you'd rather build up towards flights, hotel stays, a particular airline or retailer's own scheme, a rewards credit card may suit you better. If simple cashback on everyday spending is what you want, stick with the cashback options on this page.
Cashback cards work well if:
You are looking to make big purchases on items such as cars, furniture and holidays. This means you could earn a money back on the spending you'd be doing anyway, thanks to the higher cashback rate .
You are very confident that you will not have a problem in clearing your monthly balance in full, and therefore avoid having to pay high interest rates.
You are disciplined and will be able to resist any urge to overspend in order to attain cashback rewards.
They might not be worth it if:
You are not looking to spend any more money but currently possess some debt that you want cleared. In this case you could look at using a 0% interest transfer credit card.
You are hoping to be able to borrow money for some purchases and want to be able to pay back the debt over an extended period while paying low interest rates. In this case you are better off with a low interest rate credit card.
You find it difficult to avoid spending when there are benefits attached to making purchases.
Money Expert has been helping people compare and save since 2003. We show you credit cards from a range of UK providers, so you can compare features and apply for the card that suits you.
