How do cashback credit cards work?

What is a cashback credit card?

With a cashback credit card, you earn back a percentage of what you spend on it.

Cashback rates vary from card to card. Typically, they offer from 0.25% and even up to 5% as an introductory offer.

They work like this: if your card offers a cashback rate of 1% and you spend £400 on it, you’d receive £4 cashback.

At the moment, cashback cards are harder to come by than ever, and rates aren’t as good as they were a few years ago. But there’s still the chance to make a little money back from spending on them.

The key is to always pay back in full what you owe every month so you never get charged interest.

Rates can be higher compared to other credit cards, so could quickly wipe out any cashback you earn.

How do I earn cashback rewards with my card?

You can earn cashback from all your everyday spending; like the weekly shop, a meal out, or for filling up with petrol. Online transactions count too, and bigger purchases you make on the card like a new TV or a holiday can boost the amount of cashback you earn.

Though not strictly cashback cards, there are similar cards that offer reward points as you spend on them, which translates as money off flights, hotels or shopping.

Retailers like Tesco, M&S and Sainsbury’s offer credit cards where you build up points that are converted into vouchers to redeem in their stores.

You get points for all your spending on the card, wherever you shop, but you get a higher rate of points for spending in their particular stores.

The M&S Bank Shopping Plus Offer credit card gives you one point for every £1 you spend in M&S and one point for every £5 you spend elsewhere. And the Tesco Bank Purchases Card gets you five Clubcard points for every £4 you spend in Tesco and one Clubcard point for every £8 you spend elsewhere.

How do I redeem my rewards?

Cashback is paid automatically into your credit card account either every month, or once a year, depending on the card provider.

In the case of other reward cards, airmiles can be redeemed by logging in to your airmiles rewards card site. And points are automatically added to your supermarket or store loyalty card as you earn them on your credit card.

Do I need a good credit score?

To be accepted for a cashback card, you’ll usually need a healthy credit score.

Use our online credit card eligibility checker to assess your chances of being accepted before you apply.

It uses a ‘soft’ credit search that lenders won’t be able to view on your credit report, no matter what the result is. It won’t negatively impact your credit rating.

How can I maximise cashback rewards?

• Use your cashback card for as much of your normal spending as you can. But don’t use the card as an excuse to overspend.
• Always clear the debt at the end of the month, so you’re never charged interest. Set up a Direct Debit to ensure you do this.
• If you’re a big spender, look for cashback cards that offer a higher percentage of cashback the more you spend. Some cashback cards might offer a standard rate of 0.5%, but will bump that up to 1% for those that spend more than £10,000 a year, for example.
• Some cards offer a higher percentage of cashback for an introductory period. For example, 5% cashback over the first three months and 0.75% cashback after that. So if you’ve got some big purchases coming up, this sort of card could give good returns.

Choosing the card that’s right for you.

• Be aware that some cards impose a minimum spend to get any cashback at all. If you don’t think you’ll spend the minimum amount, look for an alternative card that doesn’t come with such requirements.
• Check for fees. If a card charges a monthly or annual fee, you’ll need to estimate how much you expect to spend on the card, then calculate that you’ll earn enough cashback rewards to make up for this fee. For example, if a card offering 0.5% cashback charges a £2 monthly fee you’ll need to spend £400 a month to break even.
• There may be a cap on the amount of cashback you can earn, so check for this. Some cards offering a sign-up bonus of 5% cashback on purchases for the first three months might limit the amount you can earn. There are cards available that place no limit on their cashback rewards, but they might come with lower cashback rates.
• Some cashback cards offer introductory 0% interest periods for purchases, balance transfers or both, so search for these if that benefit is important to you.