Cashback credit cards can bridge savings
By UK CreditCards.com
Britons are finding it increasingly difficult to save in the current financial climate, with higher income tax for the top earners and a frozen Bank of England base rate. However, a new report has suggested that some consumers are taking a more creative approach by making use of cashback credit cards.
Savings taking a back seat
With households being placed under severe pressure during the recession, it is perhaps understandable that many have been unable to save for a rainy day. This has not been helped by the base rate falling to a historic low of 0.5%, which was maintained for the 13th consecutive month in April. The government recently announced that the nation's best-paid workers are to be taxed at 50%, meaning they will need to find a savings account paying at least 7.4% to get a real return on their money. Meanwhile, individuals paying 40% tax must secure an account offering at least 6.16% and those on the basic tax rate require a minimum of 4.62%.
The value of cashback credit cards
Faced with such a tough savings landscape, an increasing number of Britons are now turning to cashback credit cards in order to find value, according to a new report by the Times. For example, Barclaycard recently launched its new Freedom card, which pays an untaxed 1% for transactions at participating retailers. This compares with the credit card provider's eSaver instant-access account, which offers 0.1% gross interest.
The AA credit card offers its breakdown cover members 1% cashback for spending up to £5,000 on fuel or motoring, while non-members receive 0.5%. Again, these deals are substantially more rewarding at present than the company's Easy Access Maturity account, which also has a rate of 0.1% gross interest. Meanwhile, the Egg Money World Mastercard provides 1% cashback on shopping but has a £1 monthly fee, meaning a £100 monthly spend is required for this payment to be covered by the cashback. Egg currently gives its existing customers a gross interest rate of 0.5% for its instant-access savings account.
Consumers who compare credit cards will have discovered that the best deal is currently provided by the American Express Platinum card, which gives 5% cashback for the first three months and then up to 1.25% for those spending more than £7,501 per year.
Making cashback credit cards work
In conclusion, it is fair to say that savvy Britons can make cashback credit cards work for them while the base rate continues to make saving prohibitive. However, the process is not completely straightforward. Anyone using such cards should be able to pay off their balance in full every month to fully reap the rewards, as excessive interest charges are likely to wipe out any cashback accrued.
Published: 15 April 2010
- Solutions for rewards aficionados in a dwindling rewards state – Many issuers are scaling back rewards programmes as a result of the cap on interchange fees that came into effect in March 2015. If you're an aggressive rewards chaser, here are some ways you can keep maximising your points ...
- Points chasing: manufactured spending risks, rewards – There are many ways to chase rewards. One of the lesser-known, but often higher-earning, methods is manufactured spending. But it can be complicated and risky, not to mention hard to find schemes that work ...
- Will debit rewards suffer cutbacks, too? – The interchange fee cap that took effect in March 2015 has already caused one credit card issuer, Capital One, to reduce perks. In spite of growing debit use and competition, will debit rewards meet the same fate? ...