Cashback credit cards

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There’s a huge range of credit cards out there – many of which come with rewards – and cashback is just one of those. Cashback is attractive, but you need to decide whether these cards are right for you. Here’s what you need to know about cashback credit cards.


We understand that the outbreak of coronavirus (COVID-19) has caused financial difficulty for some of you. If you have a credit card and you’re worried about making repayments due to coronavirus, we’re here to help you understand the options available. 

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What is a cashback credit card?

A cashback credit card is a type of reward credit card that earns ‘cash’ each time you make a purchase. Normally the cashback is worked out as a percentage of the money you’ve spent. For example, if you earn 1% cashback on your credit card and you spend £200, you’ll get £2 back.

If you tend to pay off your credit card in full every month, then cashback credit cards simply reward you for spending money you’d have spent anyway. And if you use cashback credit cards carefully you could earn a lot back. But they tend to have higher interest rates, so they’re not the best option for borrowing.

Your cashback is typically paid on a monthly or yearly basis. Often the cash will be added automatically onto your account, directly reducing your credit card balance. Other cards may instead transfer the money to your current account, or convert the cash into reward points that can be redeemed once you reach an agreed amount. Some providers will even give you the option of turning your cashback into a charitable donation.  

How do cashback cards work?

As you spend money on your credit card, you’ll accumulate a cash reward. How this is paid as cashback will depend on the terms set out by your credit card provider.

Some cards offer a simple flat rate, while others may offer a tiered system, meaning you could earn more if you spend more. Others offer higher introductory rates, or bonus cashback, for a limited amount of time. You may get different rates for different purchases – earning extra cashback on fuel purchases for example. Or you may get special, higher rates at certain stores.

With some rewards cards, you may only earn cashback once you’ve met the pre-agreed minimum spend on the card. Or there may be a cap on how much cashback you can get, so make sure you check the terms and conditions carefully. Like other types of credit card, there’ll be a limit to how much you can spend on a cashback card. If you go over that limit, you’ll be charged, and this could affect your credit rating.

Rewards-based credit card products, such as cashback, only work for you if you can pay off the card in full each month. That’s because any money you could get in cashback is likely to be eclipsed by the interest you’ll be charged, by not meeting the repayment.

How can I find the best cashback card for me?

When choosing the best cashback credit card for you, think about why you want the card. What card will reward you most for your current spending habits? You don’t want to rack up huge credit card bills to earn cashback, then be unable to pay those bills and go into debt.

Cashback credit cards can vary a lot in their terms, so it’s worth comparing what’s on offer to find the right deal for you. Some cashback credit cards include a monthly or annual fee, so make sure you check the terms carefully. Then work out whether you’ll spend enough on the card to make it worth paying that fee.  

Before you choose a credit card offering cashback, it’s important you check and understand the APR (annual percentage rate). APR is the official rate used to let you know the cost of borrowing money over a year. The percentage you see offered includes the cost of borrowing and any related fees that are automatically included, such as a monthly or annual fee.

Learn more about why the APR rate you’re offered on any credit card is so important to understand. You should bear in mind that the interest rate advertised – the ‘representative example’ – won’t always be the one that you’ll get. The deal you’ll be offered will also depend on your credit rating. 

What are cashback rates?

Cashback rates are the percentage rate at which you earn cash back on the money you spend. Different credit card providers offer different cashback rates. For that reason, it’s worth comparing what’s out there to see what cashback credit card might work best for you.

Some cashback cards have a flat rate of cashback, while others use a tiered rate system, typically offering a higher rate once you spend over a specified threshold. Other credit cards will offer very good introductory rates for a limited amount of time – this is sometimes called bonus cashback. This could be a good option if you have a large purchase coming up. However, in the long run you might be better off with a lower, but more stable rate.

Some cashback cards will pay different rates for different purchases, for fuel for instance, or for shopping at stores they’re partnered with. If you decide a cashback card is a good option, it’s worth having a clear picture of your spending habits to get the best rewards for you.

How are cashback rates calculated?

Cashback rates are calculated as a percentage of the money you spend on your credit card. Normally, it’s rounded up to the nearest penny or pound.

If a card offers you a flat cashback rate and you know your average monthly outgoings, then you can easily work out the cash you’re likely to earn with a particular card. For example, if you spend £500 a month on a card with a cashback rate of 1.5%, you’ll earn £7.50 per month as cashback.

If you opt for a card with a tiered cashback rate, you might earn one rate on spends up to a certain amount per month, and a higher rate on spends above that threshold. For example, you might earn 1% on spends up to £1,000 and 2% on any spends over that.

Cards will often have a limit to how much cashback you can earn though, with those offering unlimited cashback generally offering lower cashback rates.

What is the interest rate for a cashback credit card?

The annual percentage rate (APR) of cashback credit cards varies depending on the provider. But in general, the APR for cashback credit cards tends to be higher than for standard credit cards. If you need to borrow money, you may be better off with a different type of credit card.

Find out more about APR.

Is this type of card best for me?

Cashback cards won’t be for everyone. For example, they might not have the most competitive interest rates. Whether they will work for you depends on your individual circumstances, including your spending habits. To find the best cashback credit card for you, make sure that the credit card you choose gives you cashback in places where you’ll shop.

To maximise your earnings from a rewards card, you can use it for your everyday spending in situations where you might normally use your debit card. But it's important to make sure you can pay your card off in full each month. If you forget, it’s worth setting up a direct debit to make sure the account is cleared in full, each month.

It’s appealing to go for a cashback card because you think you’re getting something for nothing. Often, there are extremely good rewards deals to be had. However, it’s important to look at the bigger picture to see if one of these cards is right for you, before you sign up.

See what else the card has to offer, such as 0% interest on balance transfers, new purchases, or both. This could be handy if you know you’d like to spread the cost of more expensive items over a longer period of time.

To find the right deal for you, it’s a good idea to shop around and compare a few different offers to see which best suits your circumstances and your financial goals.

Frequently asked questions

Can I get a cashback credit card with no fees?

Yes, it’s possible to find cashback credit cards that have no monthly or annual fees. But you may find that cards charging annual fees have higher cashback rates. It’s worth comparing a few different options while keeping in mind your spending habits, to see what might be the right option for you.

What other rewards can I get?

Credit card providers may offer other rewards as well as cashback. It could be air miles, discounts at certain hotels or vouchers to use on your shopping.

Find out more about credit card rewards.

What is the difference between Visa, Mastercard and American Express?

Visa, Mastercard and Amex are all payment processing networks. They process transactions between the merchants – the shops, hotels and restaurants you spend money at – and the banks or credit card issuers. They set the fees that the merchants pay to the credit card issuers, but not the fees or interest rate you pay for your credit card.

Visa and Mastercard don’t actually issue credit cards to consumers – instead they work with the banks and other financial institutions that issue your credit card.

In comparison, American Express acts both as a processing network and as a credit card issuer.

The main difference for you is that Visa and Mastercard are usually accepted in most places around the world, but you may find some merchants that won’t accept American Express.

Can a cashback card build credit?

Yes, all credit cards can help you build credit if you use them wisely. But it’s important to be careful because when it comes to paying back cashback credit cards, they typically have higher interest rates.

Can you get a cashback card with bad credit?

It may be difficult to get a cashback credit card if you have a low credit score. Use our free eligibility checker to see what cashback cards you’re most likely to be accepted for, without damaging your credit score.

Will I get cashback on interest and balance transfers?

No, you won’t earn any cashback on interest or balance transfers, just on the money you spend on your card.

When is credit card cashback paid?

It varies depending on the terms set out by your credit card provider, but normally it’s either paid monthly or annually.

Are cashback credit card rewards taxable?

Normally, no. Credit card rewards are usually classed as a rebate by HMRC and so aren’t taxable, but there are a couple of exceptions. If you earn a reward without having to spend any money, this would be classed as taxable income. You’re more likely to run into tax issues if you have a business credit card. That’s because you won’t be able to deduct any money you earn as cashback, as part of your business expenses.

Where can I compare cashback credit cards?

You can use our eligibility checker to see what cashback credit cards you’re most likely to be accepted for, without affecting your credit score. All you have to do is enter a few details.

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If you'd prefer to browse our list of credit cards before checking your eligibility, you can do so here.

Anelda Knoesen

From the Money team

“If used wisely, cashback credit cards can reap great rewards, potentially earning you cash back on your everyday spending. But it’s important to find the best deal for your spending habits.”

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