Cashback Credit Cards 101: A Quick-Start Guide

Using a cashback credit card for everyday purchases can earn you cash rewards.

Rebecca Goodman Published on 21 December 2020. Last updated on 20 January 2021.
Cashback Credit Cards 101: A Quick-Start Guide

If you don’t have debts and pay off your credit card each month, using a cashback credit card could provide you with a little extra money.

They are not right for everyone, though. Some come with monthly fees and high interest rates if you don’t pay your balance off every month.

Here we explain everything you need to know, including what cashback credit cards are, how they work, how to pick the best card for you and how to apply for one.

What is a cashback credit card?

Every time you use a cashback credit card you earn a reward, in the form of cash. For example, if the card you had paid 2% cash back, every time you spent £100 you would receive £2.

Earning cash back is an incentive to spend, and while these cards may look great on paper, you’ll only be quids in if they are used correctly.

If you use the card to do all of the spending you would usually do in a month on your debit card, and pay it off in full at the end of the month, you’re essentially getting paid to spend money you would have spent anyway.

However, if you don’t pay it off every month, the interest rate charged on the money you owe may be more than the amount of cash back you earn.

» COMPARE: Cash back credit cards

How do you earn cash back?

The way you earn cash back will depend upon the card. Some pay a flat rate of cash back, no matter how much you spend, while others pay tiered rates depending on how much you spend annually on the card.

Some spending is exempt from cashback rewards, including balance and money transfers; buying foreign currency or travellers’ cheques; withdrawing cash from a cash machine or over the counter at a bank; gambling, including buying lottery tickets; and any direct debits and standing orders.

How much cash back can you earn, and when are you paid?

There usually is a limit to the amount you can earn, and this will depend on the individual card. Some cards also will pay out cash back only if you spend a certain amount on the card each year.

The cashback amount generally is a percentage of the amount you spend, and it’s generally paid back to you on an annual basis.

How you are paid the cash back depends on the provider. Some providers will deduct the cashback from the amount you owe on the card, while others will make a transfer to your current account. The money is not taxable and doesn’t need to be declared to HM Revenue & Customs.

How to apply for a cashback credit card

As with any credit card, you need to meet certain requirements to get a cashback card. For example, the best cashback cards will be available only to those with a good credit history or who earn a certain amount of money.

Before applying, check to see if you qualify. Every time you apply for a credit card it leaves a mark on your credit score, so it’s best to avoid applying unless you are confident you will get it. Using an eligibility checker first does not affect your credit score.

With cashback cards you are sometimes required to pay a fee. However, any fees and all the terms and conditions of the card will be given to you before you accept the offer.

» MORE: How to apply for a credit card

How to find the best cashback card

It’s worth doing some research to make sure you’re taking out the best card for you. You don’t want to take one out, for example, that requires or encourages you to spend more than you usually would.

A comparison website is a good place to start and will quickly give you a list of all the cards around so you can compare the cost of the card and the rewards.

» MORE: Learn how to choose the best credit card

About the author:

Rebecca Goodman is a freelance journalist who has spent the past 10 years working across personal finance publications. Regularly writing for The Guardian, The Sun, The Telegraph, and The Independent. Read more

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