A guide to cashback credit cards

By UK CreditCards.com

If you clear your credit card balance in full every month, you may think that there aren't any credit cards in the UK that can benefit you. However, that's not necessarily true. As long as you religiously repay your balance in full every month, cashback credit cards can offer some excellent perks.

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How do cashback credit cards work?
The idea of cashback credit cards is that they reward you every time you use them to buy goods and services. The amount that you earn is calculated based on the amount that you spend on your card. Typically, you will receive cashback earnings of around 1-2 per cent of the amount that you spend on your card.

So, for example, if you spent £1,000 on your credit card in a month, you would expect to receive between £10 and £20 cash back. The cashback you earn builds up over time. It is usually paid to you in the form of a cheque or is credited to your credit card account.

An ideal option -- for some
Cashback credit cards are ideal if you repay your balance in full every time you receive a statement. As cash is accrued based on your spending, you can build up a sizeable cashback sum simply for using your card.

Bear in mind, however, that if you don't pay your balance in full every month, you are likely to end up paying considerably more in interest costs than the cashback sum you will benefit from. Studies also show that cashback cards tend to encourage spending. So take care when using your card.

Alternatives to cashback credit cards
The best credit cards in terms of rewards may not necessarily be cashback credit cards. There are many other credit cards in the UK that offer ‘points' or other rewards instead of cash.

For example, instead of receiving cashback for every pound spent on your card, you may prefer to benefit from receiving Air Miles, supermarket loyalty points or reward points with other companies (such as the AA).

See related: Is a rewards card right for you?; Credit card interest rates climb higher

Published: 5 April 2011