If you usually stick with your debit card to make purchases, then you could be missing out on free cash. That’s because some specialist credit cards will pay you cashback every time you spend on them.
So how do you sign up for one of these cards? And which deals are the most generous? Here’s everything you need to know.
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How does cashback on normal spending work?
Cashback credit cards effectively pay you for your normal spending. For example, make a £100 purchase on a card paying 5% cashback and you’ll earn £5. Cashback is typically added to your account in the form of a statement credit.
Cashback cards often come without a 0% deal. So if you get one, repay your balance in full each month to avoid paying any interest. The easiest way to do this is to set up an automatic monthly direct debit.
If you’re looking for a credit card to borrow rather than save, then it may be best to look at 0% purchase cards instead.
What’s in it for the card providers?
Credit card providers make money in two ways:
- Interest charges. If you make a purchase on a credit card without a 0% period and you don’t clear your balance at the end of the month, you’ll be charged interest.
- Fees for processing transactions. Every time you use your credit card, the retailer will be charged a fee by your card’s payment processor (Amex, Visa or Mastercard).
This means that even if you’re financially savvy and repay your credit card balance each month, your provider still profits every time you use your card.
It’s worth knowing that cashback credit card offerings used to be more generous. That’s because payment processors used to charge retailers a much higher fee for processing transactions. However, an EU ruling in 2015 capped ‘interchange fees’ to 0.2% for debit and 0.3% for credit transactions. This limited the amount card providers could charge retailers, so many chopped their rates.
As the UK has now left the EU, this fee cap no longer applies. Mastercard, one of the leading payment processors, has already said it will increase card transaction fees from 0.3% to 1.5%. Consequently, this may lead to a return of more generous cashback credit card offerings in the near future.
Which card offers 5% for normal spending?
Two American Express credit cards currently offer up to 5% cashback.
Amex Platinum Cashback Everyday
The Amex Platinum Cashback Everyday Credit Card pays 5% cashback to new cardholders during the first three months, up to a maximum of £100. After this, you get 0.5% cashback on spends up to £10,000. Above this figure, you get 1% back, though you’ll probably be better off with the Amex Platinum Cashback Credit Card if you’re a big spender (see below).
The card is fee free, but do make sure you repay your balance in full each month to avoid paying 24.5% rep APR variable interest.
Do note that you must spend at least £3,000 on the card within a year to get any cashback at all.
Amex Platinum Cashback
If you’re likely to spend over £10,000 in a single year, then the Amex Platinum Cashback Credit Card also pays 5% on purchases in your first three months up to a maximum of £125. After this, you earn 0.75% cashback on spends of up to £10,000 and then 1.25% on spends above £10,000.
While the card comes with a £25 annual fee, if you’re likely to spend £10,000 in a year, the increased rate of cashback can outweigh this. Again, as it’s a credit card, ensure that you fully repay your balance each month. The rep APR is 29.8%, including the fee.
Do note that to get the 5% deal with either of these cards, you can’t have had a personal Amex card within the past 24 months.
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What other cards offer cashback on spending?
While the most generous deals are on American Express cards, it’s possible to get cashback with a handful of other cards.
The Santander All In One card offers 0.5% cashback on all purchases. As a side benefit, it also offers a 26-month 0% period on balance transfers and 20 months 0% on new purchases. However, the card has a £3 monthly fee, so take this into account. The card’s representative APR is 23.7% variable.
Alternatively, the Barclaycard Rewards card is fee free and offers 0.25% cashback. As an added boon, it’s a top-rated travel credit card, so you can use it abroad without any fees. The card’s representative APR is 22.9% variable.
For more details, see our list of top-rated cashback credit cards.
Will applying impact my credit score?
When applying for a credit card you’ll undergo a hard credit check. If you make too many hard searches in a short space of time, this can harm your score.
To limit this, it’s worth using an eligibility checker to see your chances of acceptance for any particular card before applying. For more tips, see our article on how to boost your credit score.
