60-second summary
Cashback gives you money back when you spend using certain cards.
Cashback credit cards reward you with a percentage of your spending.
Cashback debit cards offer money back as cash when buying from certain retailers.
With cashback credit and debit cards, you’re getting 'free' money on planned spending. It’s usually easy to use and can add up over time.
But be aware that credit card interest can cancel out your cashback savings, and some cards come with hefty fees, so the cashback isn't always quite as 'free' as it seems.
What is cashback?
Used wisely, cashback is a simple way to earn money when you buy things on a debit or credit card that offers this feature. You get a percentage of your spending back as cash, which is a handy little perk to make your money work harder for you.
How do cashback cards work?
Cashback can be earned in different ways depending on the type of card you use. Let's break it down:
Cashback credit cards
Cashback credit cards give you a percentage of your spending back in cash. This tends to be around 0.25% to 2%, though some providers might offer introductory rates as high as 15%.
Some cards give higher cashback amounts when you spend with specific retailers and service providers, such as supermarket shopping or fuel, or for spending above a certain amount.
How it works:
You spend as usual using your credit card
A percentage of your spending is credited back to you
The cashback is usually paid monthly or annually.
With some rewards cards, you might only get 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.
Some of the highest-paying cashback credit cards charge a fee, so do the maths to work out whether they’re the best option for you.
Bear in mind...
Rewards-based credit cards, including cashback cards, are only likely to be beneficial if you can clear your balance in full each month. Otherwise, the interest charged on your balance usually wipes out your rewards.
And don’t be tempted to spend more than you were planning just to get the cashback – this can be counterproductive.
Cashback debit cards
The good news is that, while not as common, you can sometimes get cashback with a debit card too. Some providers offer cashback when you use your debit card at certain retailers.
You might need to activate offers through your banking app, and cashback is usually paid directly into your bank account.
As with cashback credit cards, keep in mind that there may be:
A monthly account fee
A maximum monthly cashback amount you can earn
A minimum monthly amount you need to pay into your account to be eligible for cashback, and other T&Cs.
How do you use cashback cards?
Using cashback cards is straightforward. Depending on the provider, your cashback may be:
Automatically added to your credit card balance as a credit, reducing the amount you owe
Transferred to your current account
Converted into reward points that can be redeemed once you reach a certain amount
Converted into a charitable donation.
Who pays the cashback?
The cashback you earn is typically funded by the card provider or the retailer. Providers often have agreements with retailers to share a portion of the transaction fees, which is then passed on to you as cashback.
What are cashback rates?
Cashback rates are how much money you get back when you spend on your card. This is usually a percentage of your spend, and different providers have their own ways of doing it. For example:
Some offer a flat rate, while others offer a tiered system that gives you a higher rate once you hit a certain spending limit
Some offer a higher introductory rate for a limited time – this could be a good option if you need to make a one-off large purchase
Some reward different forms of spending, such as giving extra cashback on fuel or shopping at certain stores.
That's why it’s worth checking out your options to find the best deal for you.
How are cashback rates calculated?
Cashback rates are calculated as a percentage of the amount you spend on your credit card, usually rounded up to the nearest pound or penny.
Let’s take an example of a flat-rate offer at 1.5%:
You spend £500 in a month
Your cashback rate is 1.5%
You’ll get £7.50 in cashback.
If you have a tiered rate, you might for example get 1% on spending up to £1,000, then 2% on any spending above that. Just be aware that some cards have a limit to how much cashback you can get in total, while those advertising ‘unlimited’ cashback generally offer lower rates.
Advantages and disadvantages of cashback cards
Let’s run through the pros and cons of cashback:
Advantages
It's essentially free money on your everyday spending
Rewards can really add up over time, especially if you use your card frequently
Some cashback credit cards offer higher cashback rates on certain purchases
Cashback debit cards don’t involve borrowing money like credit cards but still give you a little something back for your spending.
Disadvantages
Cashback credit cards can have high interest rates if you don’t pay off your balance in full
Cashback cards can sometimes make it tempting to spend more than you otherwise would
Some cards come with monthly or annual fees that could eat into your cashback earnings
Debit card cashback is often limited to select retailers
Quick tip
Setting up a direct debit can help you to keep on top of clearing your balance each month and avoiding interest charges. You can find more helpful tips in our guide to paying off your credit card.
FAQs
Is cashback free money?
Yes and no. Cashback is free in the sense that you’re getting money back on spending you’d do anyway. But with credit cards, if you don’t pay off your balance in full, interest can outweigh the cashback benefit.
Does cashback actually give you money?
Yes, depending on the provider, your cashback could be paid as cash to your current account. But sometimes it’s added to your credit card to reduce the balance.
Is cashback a refund?
No, cashback isn't a refund, it's a reward for using your card. A refund is when you return an item you’ve bought and get your money back.
Can you get cashback with Google Pay?
Yes, if your card linked to Google Pay offers cashback, you can earn it on eligible purchases.
Can you get cashback with Apple Pay?
Yes, if your card offers cashback and it’s linked to your Apple Wallet, you can earn it on eligible spending using Apple Pay.
What is cashback bonus?
A cashback bonus is an extra reward offered by some cards, often as a promotional/time-limited offer or for spending in specific categories.
Are cashback credit card rewards taxable?
Not usually, no. Credit card rewards are usually seen as a rebate by HMRC and so aren’t taxable, but there are a couple of exceptions:
If you get 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 receive as cashback, as part of your business expenses.
What is cashback at checkout/in-store cashback?
This is a completely different type of cashback, which doesn’t give you money back on purchases. Instead, it lets you withdraw cash when paying with your debit card at the checkout in certain retailers. It's essentially a handy way to get cash without visiting an ATM.
With almost 10 years’ experience writing, leading and managing content, Allie is an expert in personal finance and insurance products. She’s spent her career helping others quickly understand complicated topics, to help them save money and focus on what matters.
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