If a credit card pays 1% cashback on all purchases, you could earn £50 if your annual spend is £5,000. But make sure you pay your balance off in full each month, otherwise the interest charges will almost certainly outweigh the benefits.
Each time you use the card, you earn a percentage of your spend back in the form of cashback.
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.
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.