Our guide to cashback credit cards
Cashback is a way of being rewarded every time you spend on your credit card. But how do cashback credit cards work and are they right for you?
Cashback is a term that can have a few different meanings. It describes receiving cash over the till when you pay on your debit card. It can be a way of getting money back when you make purchases from specific online retailers, and it also refers to getting a financial boost every time you spend on a credit card. In this guide we’ll focus on cashback credit cards and how they work.
What is a cashback credit card?
A cashback credit card works in the same way as any other credit card except you’ll earn a little bit of money back each time you make a purchase or pay a bill using the card.
These returns can soon mount up for savvy spenders who regularly use a dedicated cashback credit card and clear their balance in full every month.
Cashback amounts will vary between providers but typically expect to get around 0.25% to 1% cashback. Some introductory rates can be as high as 5% for a limited time before dropping down.
As an example of how much you could earn, 1% cashback means that for every £100 you spend on your credit card you’ll earn £1 through cashback.
There are other types of reward cards that work in similar way to cashback but instead provide rewards such as store credit, Air Miles or loyalty points, for example.
It’s important to find the right cashback card to suit your spending habits.
How does cashback work?
Every time you use your cashback credit card you’ll usually earn cashback, so the more you spend, the more you earn.
The cashback is credited to your card or sent directly to your bank account, either reducing your outstanding card balance or being available for you to spend.
Cashback is generally paid monthly, quarterly or annually, and some cards also give you an initial cashback boost when you first get the card.
Different cards pay different percentages of cashback, but the percentage can also differ depending on the type of purchase you make using the same card. For example, 1% cashback on food shopping, but 2% cashback on fuel.
Cashback might also be tiered, so you are rewarded with a higher percentage of cashback for spending above a certain limit. For example, you might receive 0.5% up to an annual spend of £5,000, but 1% if you spend more than that.
Some of the higher paying cashback cards charge an annual fee, so it only makes sense if your spending will earn enough cashback to offset this cost.
Is there a limit on how much cashback I can get?
Cashback can provide a welcome boost to your finances, but terms can vary so it’s important to understand the limits before deciding which cashback credit card will be right for you.
Some reward credit cards may set an annual upper limit for cashback, although this is more commonplace during the introductory periods where the cashback percentage is higher. Once beyond this introductory period, many don’t cap how much cashback you can earn.
Some cashback credit cards also have a minimum spend before you qualify for any cashback. For example, you may have to spend at least £3,000 a year on your cashback credit card to qualify for cashback.
How long will it take for me to receive the money? Different card providers will pay out cashback in different ways and at different intervals so check the terms of your card. Generally though, cashback will be paid either monthly, quarterly or annually.
How many reward cards can I have?
There isn’t a limit on the number of reward or cashback credit cards you can take out, but each application you make for a new card will have an impact on your credit score.
While having more than one reward card could be a way of taking advantage of high introductory cashback rates, it’s not quite that simple.
The higher paying cashback cards may have a minimum spend before you qualify, and then tend to pay a bigger percentage in cashback when you pass certain spending thresholds.
Reward or cashback credit cards are also only suitable for those who are on top of their finances and can clear their balance in full every month. That’s because the interest rates on cashback and rewards cards can be high – and if you carry a balance over and end up being charged interest this is likely to wipe out some or all of the cashback benefit you’ve earned.
If you’re considering taking out a credit card to help with existing debt then a balance transfer card, ideally with a 0% introductory period, could be a better option.
Can I get a cashback credit card with bad credit?
If you’ve got bad credit you’re likely to find it difficult to be accepted for a cashback credit card – or your choices will be limited.
Cashback and reward credit cards are aimed at those with good credit ratings who will clear their balance every month and can take advantage of the cashback on offer.
These cards are designed for borrowers with a poor credit rating. They allow you to borrow small amounts to then pay off on time and rebuild your score. This in turn can help set you on the road to better credit deals in future.
Is a cashback credit card right for me?
Cashback cards can offer a great financial kickback for borrowers - if used in the best way – paying off the debt in full each month and never carrying a debt balance.
If you can clear the balance each month you can make the most of your cashback credit card by switching as much of your day-to-day spending on to the card as possible.
If you’re considering a cashback credit card make sure you are debt-free and confident you can clear the card balance every month.
If you end up paying interest or even missing card repayments, any bonus from cashback will be quickly wiped out.
Reward credit cards can have a higher APR than most other credit cards, so if you struggle to clear your balance, you’d be more suited to a purchase credit card with a low or even a 0% interest rate for a set period.
Compare cashback credit cards with MoneySuperMarket
There is a wide range of cashback cards on the market and it can be difficult to know which ones you’re eligible for. That’s where MoneySuperMarket can help. When you compare cashback cards with us we’ll show you your chances of being accepted for a card before you apply - and searching won’t harm your credit score.
MoneySuperMarket is a credit broker – this means we’ll show you products offered by lenders. We never take a fee from customers for this broking service. Instead we are usually paid a fee by the lenders – though the size of that payment doesn’t affect how we show products to customers.