Use our UK Finance guide and learn by experience. We outline pitfalls so that you don't have to learn the hard way, as many of us often do.
Credit Cards
Cash back Credit Cards
Are you one of those people who controls their finances with the utmost of discipline? Are you always able to settle your credit card account in full each month? If so, how do you choose which credit card is best for you. You can't exactly compare interest rates because, by repaying the full amount each month you're never attracting any interest charges anyway. Enter the cash back credit card.
What are cash back credit cards?
Cash back credit cards offer you a cash back incentive on purchases that you charge to your card. The amount of incentive offered by your cash back credit card depends on several factors such as, which brand of cash back credit card you are using and how much you charge to your card each month, but you can pretty much expect to earn cash back values ranging between 0.01% and 2% of the value of your cash back credit card UK purchases (1% would be average). For someone who regularly repays the full amount on their credit card bill each month and therefore does not attract any interest charges (this is how all credit card accounts should ideally be operated), this is a really nice benefit and over time can end up saving you a substantial amount of money.
How does a cash back program work?
Most cash back credit card providers will allow for different levels of cash back earnings depending on how much you have spent, how long you have held your cash back credit card for and sometimes, on where you have made a purchase. But this varies between cash back credit card UK companies and you may find that whereas one cash back credit card provider will increase your incentive earnings percentage once you have reached a certain level of expenditure, another provider may do the opposite. So the choice as to which cash back credit card provider you decide to sign an agreement with is obviously very dependent on your personal expenditure patterns and one that can only be made once you have perused all the benefits pertaining to the card they are offering you, and compared these with the benefits of other cash back credit card offers you have on the table.
What's in it for cash back credit card providers?
Cash back credit cards are quite costly programs for providers to run (well, in relation to other types of credit cards anyway) and so you need to look out for any hidden costs before signing a cash back credit card agreement. One of these costs often appears in the form of a rather high annual fee. Another way cash back credit card companies have of making money is by attaching comparatively high interest rates to their products. Because it is assumed that you will be paying off your cash back credit card balance in full before the end of each month, and you are being rewarded for this through your cash back incentive, should you fail to settle in full, your cash back credit card account begins to accrue interest charges (these being at a higher rate than you would find applicable to ordinary credit cards). You may also find your account attracting late payment penalties and these, coupled with interest charges and a potentially higher rate of interest being attached to your cash back credit card UK account, will most certainly counteract any benefits you have gained in the form of cash back incentives.
Summary.
The different types of cash back credit cards are not the easiest products to compare as the programs offered by various providers tend to differ vastly, but to put this in a positive perspective, it just means that you have more, varied cash back credit card options available to you. Spending a while online, shopping around will give you a fair idea of whose cash back credit card is going to best suit your specific needs.
The key points to remember are:
- If you're not the type of person who already settles their credit card bill in full each month, you're probably going to get yourself into hot water by getting a cash back credit card.
- Study your past spending patterns to help you decide which cash back credit card is going to work best for you.
- Look out for any hidden costs attached to your cash back credit card agreement.
- Make sure you know by how much your interest rate will change should you end up making a late payment and what level of late payment penalties you will be faced with.
