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Is a cashback credit card worth it?

By:  Sean LaPointe | 20th June 2021

Cashback credit cards reward you for spending by giving you money back when you shop. But are they really worth all the hype? Let’s take a look at cashback credit cards and whether and when it might be worth applying for one.

What is a cashback credit card?

Not to be confused with asking for cashback at your local supermarket checkout, cashback is a credit card benefit that allows you to earn back some of the money that you spend on a purchase with the card.

So, with a cashback credit card, whenever 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 could be on specific items, in specific shops or on everything you buy.

The cashback may be paid annually or monthly. Most cashback 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 cashback credit cards will pay a flat rate of cashback regardless of how much you spend and where you spend it.

Others will pay in tiers depending on how much 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 may be bumped up to a higher percentage, such as 1%.

Some cards might also offer different rates of cashback depending on where you spend the money. You might get a different rate when you spend at a supermarket, at a department store or on fuel.

In addition, some cashback cards may offer high introductory rates to attract you, which might then drop after a set period.

When is a cashback credit card worth it?

If you are disciplined enough to pay your credit card balance in full each month, then a cashback credit card can be a good idea. You’re essentially getting rewarded for spending money that you would have spent anyway.

It can be an effortless way of earning a small amount of passive income. 

When is a cashback credit card not worth it?

If you struggle with paying your credit card bill in full every month, then cashback credit cards might not be a good idea.

That’s because failure to pay off the balance every month will result in you being charged interest at a high APR. These high interest charges could far outweigh any cashback you receive.  

If you do decide to take out a cashback credit card, consider setting up a direct debit to automatically repay your balance each month.

What else do I need to be aware of?

Some cashback credit cards may charge you a monthly or annual fee. This can eat into your cashback returns. Therefore, ensure that you will actually use the card before you apply for one.

For example, if you get a 5% cashback card with a £20 annual fee, you’ll have to spend more than £400 per year to earn more than the card costs.

Keep in mind that there will typically be fees and interest charged for cash withdrawals. That’s the case even if you pay the card off in full. It’s therefore best to avoid cash withdrawals with this type of card.

Bottom line

If you fancy earning some money back every time you spend on your credit card and can repay your balance in full every month, then a cashback credit card might be worth considering.

To help you narrow down your choices, we’ve compared some of the top-rated cashback credit cards in the UK.

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