Is a cashback credit card worth it?
Cashback credit cards reward you for your spending by making money back when you shop. But are they really worth all the hype? Let’s take a look at cash back credit cards and whether and when it might be worth applying for one.
What is a cashback credit card?
Not to be confused with requesting cash back at your local supermarket checkout, cash back is a credit card benefit that allows you to get back some of the money you spend on a purchase with the card. .
So with a cashback credit card, every time you spend money, a percentage of the transaction is credited back to you as a reward.
For example, if your card offers 2% cashback, you will receive £ 2 back when you spend £ 100. This can be on specific items, in specific stores, or on anything you buy.
Cashback can be paid annually or monthly. Most cash back credit cards will credit the amount you earn to your statement, reducing your credit card bill. Others will deposit the cashback directly into your bank account.
How much cashback can I get?
It depends on the credit card provider and the type of card.
Some cash back credit cards will pay a flat cash back rate regardless of how much you spend and where you spend it.
Others will pay in increments based on what you spend. For example, some may pay you 0.5% if you spend £ 5,000 or less on the card each year. But if you spend more, the cashback can be increased to a higher percentage, such as 1%.
Some cards may also offer different cash back rates depending on where you spend the money. You might get a different rate when you spend in a supermarket, department store, or on fuel.
Additionally, some refund cards may offer high introductory rates to entice you, which could then drop after a set period of time.
When is a cashback credit card worth it?
If you are disciplined enough to pay off your credit card balance in full each month, then a cash back credit card may be a good idea. You are basically rewarded for spending money that you would have spent anyway.
This can be an effortless way to earn a small amount of passive income.
When isn’t a cashback credit card worth it?
If you’re struggling to pay off your entire credit card bill every month, cash back credit cards might not be a good idea.
This is because if you don’t pay off the balance each month, you will have to pay interest at a high APR. These high interest charges could far exceed any cash back you receive.
If you decide to purchase a cash back credit card, consider setting up a debit to automatically pay off your balance each month.
What else should I be aware of?
Some cash back credit cards may charge you a monthly or annual fee. This can eat away at your cashback returns. Therefore, make sure that you will actually be using the card before requesting it.
For example, if you get a 5% cashback card with an annual fee of £ 20, you will have to spend over £ 400 per year to earn more than the costs of the card.
Keep in mind that there will generally be fees and interest charged for cash withdrawals. This is the case even if you pay for the card in full. It is therefore better to avoid cash withdrawals with this type of card.
At the end of the line
If you want to get cash back every time you spend with your credit card and can pay off your balance in full each month, then a cash back credit card might be a good idea.
To help you narrow down your choices, we’ve compared some of the UK’s top rated cash back credit cards.
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