Take your slice of credit card rewards

Published:
14 March 2012
Topic:
News,Money,Credit Cards

Paying sky-high interest on credit card purchases is something that many consumers have been reluctantly doing for years. But now things are changing and a growing number of credit card holders are seeking not only to avoid interest, but to get something back for their spend, be it rewards points, air miles or plain, old cash.

Recent research by Sainsbury's Finance shows that 42.3% of all credit cards now offer rewards based incentives compared to just 27.4% two years ago. However, the research also revealed that the financial value of these rewards can vary dramatically and that the average reward on a cashback credit card is just 0.77%.

This means that on a £6,000 annual spend you would only get £46.20 back. This is clearly better than nothing but it does highlight that, in order to get the best deal, you need to compare the raft of reward cards on offer and choose wisely.

Here we look at the types of rewards cards that are available as well as some of the best deals currently up for grabs.

Cashback credit cards

Although it may sound too good to be true, cashback credit cards do actually reward you with cash every time you spend on them, usually at a rate of between 1% and 3%, so it really is money for nothing.

However, in order to get the most out of a cashback credit card you need to ensure that you spend on it regularly and pay off the balance in full at the end of each month. Failing to do so means that any cash you make back will be negated by the higher level of interest you'll pay on the outstanding balance.

Another downside of cashback cards is that they often come with an annual fee so you should factor this in when deciding upon which card is best for you.

American Express is currently offering the highest uncapped and ongoing cashback rate with its Platinum Cashback credit card which rewards you with 5% cashback on spend of up to £2,000 within the first three months. The cashback rate will then drop to 1.25%.

The annual fee for this card is £25 so when this is factored in with its 14% interest, the representative APR (the Annual Percentage Rate) is actually 19.9% (variable).

Depending on how and where you spend, Santander's 123 credit card could be a better alternative. The card offers 3% cashback on fuel spend (up to a limit of £9 a month); 2% cashback on department store spend and 1% cashback on spend in supermarkets.

Cashback on this card is capped at £300 per month and its annual fee of £24 added to its 18.9% interest rate, means that it has a high representative APR of 22.8% (variable). However, interest should be irrelevant anyway if you clear your balance every month, which is the only way really benefit from the cashback facility.

Rewards credit cards

Rewards credit cards differ from cashback credit cards in that, instead of earning cash when you spend, you earn reward points that can be used against shopping or activities.

The type of reward you receive is dependent upon the type of card you use. For example, supermarkets may offer loyalty points each time you spend and may have an added incentive that rewards you with extra points when you use the card in their store.

On the other hand, some lenders offer reward points to be redeemed against products bought from companies they have a partnership with, which could be anything from an airline to an online store.

Then there are airline specific rewards cards that offer you Avios (formerly Air Miles) points or points that can be redeemed against flights with certain airlines.

Rewards credit cards also differ from cashback credit cards in that they are usually fee-free and can come with periods of 0% interest on new purchases, balance transfers or both.

Tesco's Clubcard credit card has one of the best deals currently available as it has 0% on purchases for 15 months, 0% on balance transfers for nine months (subject to a 2.9% transfer fee) and offers one Clubcard point for every £4 spent and also doubles as a Clubcard for added points when used in a Tesco store.

Away from the supermarkets NatWest's YourPoints World Mastercard could prove popular as, not only does it offer 0% interest for 13 months on both purchases and balance transfers (subject to a 2.9% transfer fee), for every £1 you spend it rewards you with one point that can be redeemed against purchases at M&S, Amazon and Boots as well as flights with easyJet.

How to make the most of rewards and cashback

As with cashback credit cards, the way to get the most from rewards cards is to regularly spend on them and ensure you don't fall foul of interest fees by paying off the balance in full at the end of each month.

Research from Standard Life suggests that this behaviour is becoming more commonplace among consumers as 57% of respondents to its poll reported that they no longer spend what they don't have and avoid running up debts on credit cards.

This was echoed by Kevin Mountford, head of banking at MoneySupermarket, who said: "Even in these difficult times the majority of credit card holders tend to pay-off their debt each month. With this in mind, card users should look to maximise the benefit they receive by looking at 'reward' or cashback offers."

It also makes sense to shop around to ensure that you get the right credit card to fit your needs. Using MoneySupermarket's SmartSearch facility means that you can instantly compare a range of credit cards and find out your chance of acceptance without leaving a footprint on your credit file.

This is important as each credit card application you make is noted on your credit file and having an application rejected or making number of applications in quick succession can have a negative impact on your credit score which can make it difficult to obtain further credit.

Credit card protection

Whether or not you are out to earn as you spend, it is always a good idea to use a credit card for larger purchases due to the extra level of protection they afford you.

Section 75 of the Consumer Credit Act covers you for goods valued at between £100 and £30,000. So if any goods that you buy with your credit card are faulty, arrive damaged or do not arrive at all, you can make a claim against your credit card company as it is held jointly liable with the merchant.

In addition, the Consumer Credit Directive was introduced in 2011 to offer the same level of protection for items valued anywhere between £30,000 and £60,260.

Please note: Any rates or deals mentioned in this article were available at the time of writing. Click on a highlighted product and apply direct. We're free, independent and compare all UK credit cards, as well as offering exclusive deals you can't get anywhere else. Contact MoneySupermarket.com at Moneysupermarket House, St David's Park, Ewloe, Flintshire, CH5 3UZ. © Moneysupermarket.com Ltd 2011.

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About This Author

Les Roberts

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Senior writer

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