Rewards schemes versus cashback websites

Many retailers are signed up to reward schemes and cashback websites. But which pays you more?

As online shopping has grown in popularity, so have the number of ways you can earn something back on the things you buy.

Cashback websites have now become a part of many people’s everyday shopping experience, while reward schemes such as Nectar and Avios (formerly AirMiles), which have been around a lot longer, have welcomed more and more retailers on board.

How cashback websites and reward schemes work

The largest cashback websites, such as Quidco and TopCashback, now claim to pay out hundreds of millions of pounds a year.

The idea is very simple: you sign up with a cashback site, search for offers from retailers, then click through and purchase from an eligible retailer and earn cashback. It's worth noting that Quidco charges a £5 annual membership fee, while TopCashback is free, although as you'll see the amount of cashback each offers can vary.

Reward schemes, as their name suggests, reward you with points every time you make a purchase at partner retailers. You can either do this in-store via a reward card (in the case of Nectar at certain retailers, such as Sainsbury's) or by purchasing via the reward scheme's website.

Some retailers are only part of reward schemes; for example Amazon is part of Nectar but not currently on any cashback sites. Meanwhile, Boots appears on cashback sites but is not part of a reward scheme (I'm not counting its own Advantage Card).

However, many appear in both reward schemes and on cashback sites. So that presents a dilemma. Do you go via a reward scheme such as Nectar or Avios and earn points to redeem later? Or do you plump for cold, hard cash? You can’t do both.

How they compare

Obviously if you prefer cash it’s a no-brainer, but what if you’re contemplating using your rewards to pay for travel or other treats? Let’s take a look at how reward schemes stack up against cashback websites for some of the most popular retailers.

What your rewards are worth

Now let's take a look at how much cash your reward points are worth. For this example, and it is only an example, I've presumed that you earn an average of two Avios or Nectar points for every £1 you spend.

Based on that, here's what the points are worth when they're spent on various rewards.

*Your Nectar points are worth double on this reward (ie 500 points=£5 off)

I should say again that this is quite a rough and ready analysis, as Avios doesn't reveal how much its points are worth. So I've used figures I've obtained from the reward providers' sites to work out the value. Nectar is more straightforward, as 250 points are worth a £2.50 discount in most cases (I've indicated the one example above where this isn't the case).

Based on my research, if you spend £100 at Argos with the intention of collecting points to redeem against a Eurostar return journey, you'll receive Avios to the value of £1.50. Alternatively, take the 1.5% cashback from Quidco or topcashback and you’ll be paid £1.50 in cash.

But spend £100 at Argos and collect the Nectar points to redeem against an easyJet flight to Malaga and your points will only be worth £1, versus the £1.50 you could have earned via a cashback website.

My analysis indicates that, if it's just a simple case of reward points versus cashback, you're better off in most cases taking the cashback. And that also means you can shop around for flights or treats and potentially pay less for them than you would by spending the equivalent rewards points, for example by flying with a budget airline rather than a full-price one.

Earn more with a credit card

However, if you pay for your shopping using a reward credit card, such as the Sainsbury's Bank Nectar credit card or the British Airways American Express card (which offers Avios), you can quickly double or treble your points. And that quickly increases your ability to earn rewards such as flights or days out, particularly if you get a hefty welcome bonus of thousands of points.

The same applies to cash, if that's the route you prefer to take, if you pay using a cashback credit card such as the American Express Platinum Cashback Everyday card or the Capital One Aspire World card.

The key, of course, with these credit cards is to make sure you can pay off your balance in full each month. Otherwise your rewards or cashback will be eaten up by interest charges.

Don't forget loyalty schemes and voucher codes

If you have a Boots Advantage card or a Waterstones card, you can also earn loyalty points on your purchases in addition to any cashback. So if you're a regular shopper at a particular shop, see if they have a loyalty scheme.

And you may be able to save a bit with a voucher code for your purchase. The cashback sites often carry these now, but it's also worth checking the likes of Vouchercodes.co.uk and MyVoucherCodes to see if there are any others you can use at the checkout.

Whichever way you prefer to be rewarded, it's well worth checking every time you shop online to see if you can earn some rewards or cash.

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