How does cashback work?
How does cashback work?
When you buy something, you get a percentage of the amount it cost paid back to you. This means cashback is a way of getting money off things you buy – think of it like a discount or incentive. It’s normally a feature of credit cards, but some current accounts also offer cashback. Cashback is often offered on specific purchases, such as fuel or for bills. But many providers now offer cashback on anything you buy.
How does cashback work?
For example, if your card pays 2% cashback and you spend £100 in a shop, you’ll earn £2.
This cashback is generally paid annually, though some cards will pay cashback on a monthly basis.. Each time you use the card, you earn a percentage of your spend back in the form of cashback. But make sure you pay your balance off in full each month, otherwise the interest charges will almost certainly outweigh the benefits.
Most cashback cards credit the amount you earned onto your statement, reducing your credit card bill. Some cards send the cashback to a bank account so you can spend it, or let you convert it to points or vouchers.
Reward points can normally be exchanged when you have enough to qualify for a ‘reward’.
Cashback cards come in various forms
Some will simply pay a flat rate of cashback, no matter how much you spend or where you spend it.
Others pay tiered rates of cashback depending on how much you spend. For example, 0.5% if you spend less than £6,000 annually and 1% if you spend more. Be careful this doesn’t tempt you to spend more than you can afford to repay comfortably.
Some cards offer different rates of cashback depending on where you spend your money. For example, 1% on money spent in supermarkets, 2% on money spent in department stores and 3% on money spent on energy.
When cashback credit cards are a good idea
If you pay your credit card bill off in full every month, then cashback credit cards can be a great idea. This is because you’re getting rewarded for spending money you would have spent anyway.
If you don’t always pay off your credit card bill in full, then cashback credit cards are not a good choice.
Although you’ll earn cashback on your spending, this will usually be less than the interest charged on your outstanding debt.