Cashback Credit Cards: How do they work?
Written by Robert Bester, Consumer Finance Expert Robert has been a writer for six years, specialising in consumer finance and the UK lending market. Concentrating on consumer credit products, Robert writes informative articles that help customers manage their personal finances efficiently.
17th January 2022
4 minute read
One advantage of getting a credit card is making use of perks or benefits you receive when spending under certain conditions. In the case of a cashback credit card, you can earn money back every time you spend in certain retail establishments, meaning you can make a saving every time you spend.
This can be particularly useful if you visit certain shops frequently, as it can earn you a fair amount every time you spend. While some cashback credit cards only offer this perk in certain shops, others offer a percentage of cash back when spending anywhere, which can also be useful for saving money.
To find out more about cashback credit cards, along with how they work in the UK, keep reading our handy article below.
What is a cashback credit card?
- Earn money back every time you make a purchase
- With some credit cards you have to spend in certain retail outlets to earn cashback
- Other credit cards offer a blanket cashback percentage for any purchases
- Always check for additional terms and conditions
A cashback credit card is designed for those who are planning on making purchases, but would like to earn a cash reward at the same time. This can generally be for a particular shopping outlet or even for general purchases from multiple retail outlets.
If managed well, this means you can earn cashback on your purchases and save money in the process. This can be beneficial for situations such as birthdays, Christmas presents or any other regular expenses where you would like to save money.
There are terms and conditions attached to a cashback credit card that you will need to stick to in order to earn a cashback bonus, but other than that it will work like a standard credit card in that you will have to pay interest on your outstanding balance. If you have to pay interest this can sometimes eclipse your cashback bonus, so it’s worth paying off your card every month to avoid any extra charges and to keep your savings intact.
How does a cashback credit card work?
- Your cashback credit card will have certain criteria that enable you to earn cashback
- Make a purchase using the credit card, hitting the criteria stated in the terms
- You will then be rewarded with a cashback amount
- You will still incur interest on any outstanding balance so try your best to pay off your card every month
Every time you spend money using your cashback credit card at certain retailers, you will earn a percentage of the total cost back as a bonus which you will usually receive at the end of the month. Ultimately, when you receive a cashback bonus is at the discretion of your credit card provider, so make sure you always check what the process is prior to spending.
This can vary between a higher percentage at specific retailers for a short time, to a lower percentage for every purchase at any retailer in the UK. Always be aware of the terms of the cashback credit card before you start to spend as there will be certain criteria for you to receive a bonus when you spend.
What stores do cashback on credit cards?
There are plenty of shops that will have a partnership with a particular credit card provider, and this may also change depending on external factors.
They include retail outlets such as John Lewis and Argos as well as supermarkets such as Tesco, Sainsbury’s and M&S, who provide their own cashback credit cards where you can earn a cash bonus, or reward points for spending. There are also options for online retailers such as Amazon, where you can earn points that are converted into vouchers.
The main thing is to assess how often you shop at a specific retailer and whether you would benefit from a cashback offer. The good news is that you can usually find out what cashback is available before you apply for a specific credit card, so this means you can handpick the most appropriate option for you.
If, on the other hand, you would prefer a blanket cashback percentage on all of your purchases, there are also credit card options for that as well, though the percentage is likely to be much lower or even be capped to a certain amount on how much you can earn.
What are the pros of a cashback credit card?
The main benefit of a cashback credit card is the ability to save money on your purchases, but this bonus can sometimes be outweighed by incurring interest or additional charges. That means you will need to carefully manage your credit card and ensure, where possible, that you can pay off the balance every month.
If this can be achieved and you are able to reduce your balance to £0 every month, then you can quite easily make a saving on your purchases, especially if you get a higher percentage of cashback on a specific retailer. There are also additional rewards that you can accumulate, as well as further bonuses if you hit a certain spend amount within a limited time frame. Always make sure you read the terms of the credit card before you start using it.
What are the cons of a cashback credit card?
The main con of a cashback credit card is that if you don’t reduce your balance every month, your cashback bonus could be cancelled out by interest and additional charges. This type of credit card suits a certain type of shopper, so should be avoided if you don’t think you will utilise the cashback bonus or will struggle to pay off the balance.
As much as ‘cashback’ is a bonus, it should be seen as a potential saving you make when making purchases. Alongside this, you should also make sure, like you would with any credit card, that you’re able to pay off the balance easily, otherwise you could end up paying more in interest.
If you plan instead on spreading the cost of your purchases, you could be better off getting a 0% Purchase Credit Card instead, as this reduces your interest to nothing for a limited time.
Cashback credit card eligibility
- Make a list of retailers you shop at frequently
- Compare credit cards by seeing how many of these retailers you can receive a cashback from
- Check your eligibility
- Apply for your cashback credit card when ready
Are you eligible for a cashback credit card? Try our FREE online eligibility tool MoneyMatcher to find out whether you can apply today. Use the link below to get started.