Bonus cashback: Cashback credit cards and bank accounts

Cashback credit cards

Cashback credit cards and bank accounts are a way of making money back by spending on a particular credit card or using your current account. Cashback cards are one of the most popular rewards schemes and you can earn a nice bit of cash when you use your credit card for everyday spending.

What is a cashback credit card?

Designed for everyday spending, cashback credit cards are a type of rewards card, which instead of giving you points — Sainsbury’s Nectar points for example — give you cold hard cash when you use them. So no more worrying about how to spend the points, as it is just cash paid directly into your account. 

Each time you buy something on the card, you’ll earn a percentage of what you’ve spent back. For example, if you have a 1% cashback card, then each time you spend £100 you’ll earn £1 back. This might not seem very much but it adds up over time and it is a nice boon as you would be spending that money anyway. 

The basic idea is that you do all of your regular day to day spending on your cashback card, earning cash for purchases you would already make. 

Why do card providers offer cashback?

Basically, card providers and banks want you to use their card, as each time you use it, they get a small fee. When merchants take payment via cards, they must pay a percentage of the transaction amount to the credit card supplier, and this fee can then be passed back to you. 

This is the reason we are inundated with offers for cashback credit cards in the UK, because the card provider makes money each time you use the card, so it makes sense to offer an incentive to use that particular card. 

It is important, however, to read the fine print as with any credit card. Cashback cards will normally have an annual limit on the amount of cashback you can earn. Plus, the interest on the purchases will be quite high, so unless you pay it back in full each month, the amount you pay back might outweigh the benefits. 

The best cashback credit cards give you a higher introductory rate, for example of 3% for three months, meaning you’ll earn more in the first few months (normally up to a fixed amount like £100). Then once this introductory period is over the rate will go back down to 1%. 


cashback credit card online shopping
Source: Karolina Grabowska / Pexels.

What is a cashback bank account?

Cashback current accounts give you money or rewards back as an incentive to use that account, with a cap on how much you can earn. The bank will give you money for paying certain things like bills via direct debit, or supermarket shopping using your current account’s debit card rather than cash.

Most banks offer £5 per month limits on the cashback, others more, and some accounts offer rewards like free cinema tickets in lieu of cashback — which would probably work out more beneficial than the £5, as the cinema can be shockingly expensive. 

There are normally a few caveats too, for example you might have to pay in a certain amount each month to qualify for the account, or even pay a fee to hold the account. Also, it’s probably good to bear in mind that some rewards current accounts have high overdraft rates so they may not be the best choice if you’re often overdrawn.

You can also earn larger one-off payments by switching bank accounts, from £50-150 depending on the bank or building society you want to switch to. There will again be some conditions, such as having a certain amount of direct debits coming from the account, or paying a minimum amount into the account each month.


Cashback queries

How is cashback calculated?

Banks and other financial institutions calculate cashback as a percentage of what you spend on your card or from your current account throughout the year, or sometimes month to month. This percentage is determined by the rate they offer, normally around 1% but it can be higher than this. 

Some cashback cards in the UK offer a flat rate, so if you know what your average spending is, you can easily work out how much you will earn. For example, if you know you spend £800 a month on your credit card (food shopping, bills, fuel, phone contract, etc.), and the rate is 1% you’ll earn £8 each month, or £96 per year. 

If your card has higher rates for certain purchases — like fuel for example — you’ll build up cashback more quickly. 

As mentioned above, cashback credit cards will normally have a limit of how much cashback you can get per month or year. Some will have unlimited cashback, but the rates will be much lower to balance it out. 

Watch out for interest rates

Like any credit card, you will be charged interest on your purchases, because fundamentally, the credit card provider or bank is lending you money and they’re not going to do that without a fee. Due to the incentives of getting cashback, the APR interest on a credit card with cash back tends to be higher.

The problem here is that any gains in cashback can be easily negated by the interest you are charged each month. The way to avoid this is by paying back in full whatever you owe, clearing the balance, and this is why they are best for everyday spending. 

If you want to buy items to pay back over time, then it is best getting a no or low interest credit card.

Are cashback credit cards worth it?

Once you read the fine print and realise the limitations of the cashback, for instance, how much you’ll have to spend to make any real money or the amount of cashback you’ll actually receive, then the offers look far less generous. 

These cashback offers are there as incentives to use the credit card as you would a debit card, and so favour the card issuers. Firstly, they generate additional merchant fees when you use one, and secondly, the interest is a way for credit card providers to make money which could cause you to increase your debt if you don’t pay them off in full. 

If you can keep on top of the debt and pay them off each month, then they are worth it to make a small amount of money back, but if you can’t then the interest makes them pointless.


How to maximise cashback on credit cards

american express cards
Source: / Unsplash.
  1. Make the most of introductory offers

    Some cards will offer high rates of cashback for the first three months, so use that to your advantage. 

    Cashback cards that offer 5% for the first three months, for example, will give you a boost in your cashback. Unfortunately, there will be a limit to how much you can earn at this higher rate so check the terms & conditions of each card provider first. Once the three months are up, you will go back to the normal 1%. 

    The best cashback rates can be found on American Express cards, but then not all merchants accept Amex as payment.

  2. Always pay off your balance in full each month

    No one wants to pay interest if it is possible to avoid it. Therefore pay off the balance in full, and only use your cashback credit card for everyday purchases and bills, things that you know you can pay back in full. The best way of doing this is setting up a direct debit to clear the amount each month. 

    Effectively, your credit card is now a debit card, and you won’t get any pesky interest on top. If you want to use a credit card for something else, like a big purchase or as a balance transfer, apply instead for a no or low interest card.

  3. Never borrow or take cash from your credit card

    Slipping into debt is easy with credit cards, especially if you forget to pay or buy stuff you don’t actually need. Plus, if you take cash out of this type of card, more often than not you will be charged a fee at a high interest rate, even if you can pay it back in full.

    So again, use a cashback credit card as a way of buying things you always get - shopping and fuel, and that way, you know you can pay it back.

Frequently asked questions

How do cashback cards work?

As stated above, cashback cards give you a small percentage of a purchase back to you, say 1%, as an incentive to use that particular card for everyday shopping. 

Banks and card providers can do this as they’ll earn a fee each time you use said card in a shop or online. 

Does cashback show up on bank statements?

Can you get a cash back credit card?

Are cashback credit cards really worth it?

Are American Express cashback cards better than bank cashback credit cards?

Which banks offer cashback credit cards?