Why Choose a Cashback Card?
The big story in credit cards over the last few years has been the 0% balance transfer offer, with card after card offering ever-longer introductory periods, and ‘credit card surfing’ becoming a popular sport among ‘rate tarts’. However, there are signs that the days are coming to an end for the balance transfer as the most important card feature, especially since the introduction of the transfer fee. The hot new facility that many of us are looking for now is cashback.
Recent research by credit card issuer Morgan Stanley suggests that while 17% of cardholders are making use of a balance transfer facility, 21% of us now have a card with either cashback or rewards. Why is cashback suddenly so popular?
Ever since plastic came onto the scene, it’s had a bit of an image problem, with most of us accepting that using a credit card is an expensive business, albeit a convenient or even essential one. Cashback cards are different, as they offer us the chance to actually profit from using a card rather than paying through the nose for it.
When you buy something with a cashback card, a small percentage of the price you pay is either credited back to your account or stored up to be paid back to you annually as a lump sum. When cashback first appeared, the percentages involved were hardly worth bothering with at 0.5% or even lower. These days, more cards are offering higher rates with the current market leaders being Morgan Stanley and American Expresswho both offer 3% for a limited introductory period. (Figures as of 4.10.06)
With cashback rates at this level, it becomes much more worthwhile – effectively, you can get a 3% discount in every shop you visit or for any service you can pay for by card. And if you clear your balance in full every month, you’ll avoid interest on what you spend, so you’ll actually be making a profit every time you use your card for a purchase you’d be making anyway.
So, it’s fairly obvious why cashback is popular, but there are a couple of things to bear in mind before deciding to apply for one.
Firstly, you’ll probably receive your cashback once a year, and this is dependant on you abiding by the terms of your credit agreement. What this means in practice is that if you miss a payment or are late with one at any time throughout the year, you’ll have breached your agreement and will forfeit all the cashback that you’ve built up. Be sure to arrange payment by direct debit, preferably for the full balance every month, to make sure you avoid this problem.
The other more minor drawback is that some cashback cards have a spending limit after which no more cashback will be paid. This figure will vary from card to card, but when comparing cashback cards check to make sure your spending isn’t likely to exceed the yearly limit.
Cashback and reward cards seem to be the future, so why not compare cashback deals and see how much your normal card use could be worth to you?