Credit cards that make shopping cheaper

How can you save money by spending on your credit card rather than your bank card? We review the best cards for this practice.

Here's a review of reward and cashback cards available to new applicants. They are suitable if you pay off your card in full every month.

Bog standard

A bog-standard cashback card has no annual fee and pays 0.25% cashback. That's miserly, but since it's applied to all purchases you can shop around for the best deal and still reduce the cost a bit further. There's currently just one bog-standard card: the Smile credit card.

Airmiles cards

For most individuals, air miles credit cards such as Lloyds TSB Airmiles Duo won't pay off compared to choosing a different card and flying with budget airlines. Even if you always fly premium airlines, the fact that air miles usually tie you to one airline means you'll pay more, because other premium airlines will often have cheaper flights.

These cards are most suitable if you insist on always flying with the same airline. Ironic that many airlines, even 'premium' ones like Virgin, charge 2% or more when paying by credit card.

Retailers

Some cards offer points at one or more retailers, but remember most retailers offering loyalty schemes are much more expensive than the cheapest stores, even after points. I looked at offerings from Barclaycard, Egg, MBNA, BT and more. None compare well to the bog-standard cashback card.

NatWest has reward partnerships with some of the cheapest companies, which is atypical for reward cards, making it worth a look if you fly easyJet or buy Amazon. You'll get 0.5p to spend at those retailers per £1 you spend anywhere. You'll need to collect several thousand points before you can claim most rewards, but you can use the points on already discounted products.

A couple of credit cards linked to just one retailer are worth singling out because they have very cheap products and good service. These companies end up taking our business again and again, even when we compare prices, so if we can reduce those costs further, even better. Play.com and Amazon are the companies; both have reward credit cards. All spending will give you a 0.5% (one point) reward or more to be spent in those stores.

Supermarkets

The Tesco Clubcard credit card replaces your existing Clubcard and it gives you an extra point for every £4 you spend anywhere – not just in Tesco. A Clubcard point is usually worth 1p in store.

The nub is, it's like a cashback card paying a measly 0.25%, except that the cash you earn has to be spent in Tesco.

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• Serena Cowdy writes:

  Frugal Food - 1 October

  Welcome to this week's edition of Frugal Food. We’ve got new and extended restaurant deals from Pizza Express, Giraffe, ASK, GBK, Las Iguana and Nando’s. We’ve also got a new Dine In deal from M&S, 2 4 1 on Activia yoghurt multi-packs, half-price chocolates, a new family meal deal, 25% off wine, a free glass of Coke, a money-off LIDL voucher and cut-price Taste membership!

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A minor plus point is that Tesco might offer you special deals on something you'd have bought anyway, e.g. by earning you double points when you buy a particular product. However, those marketing ploys are to make you spend more in store; they're not designed to save you money. Hence, I wouldn't choose a card in anticipation of special deals.

Sainsbury's Nectar credit card offers one Nectar point, usually worth 0.5p, for each £5 you spend anywhere. That equates to just 0.1p (or 0.1%) to spend in store per £1 you spend. On top of that, any additional Nectar points you earn will be doubled for two years, which means another 0.5p per £1 spent – but remember you only normally earn those Nectar points on in-store spending. Generally, credit cards that tie you into earning points in the same store as you have to spend them are poor; you'll save more money with another credit card, whether you're a Sainsbury's customer or not.

Motoring

The AA credit card is for motorists. It's reward scheme is very complicated, so let me give you the important bit: AA members will effectively save £4 on AA products for every £100 you spend on petrol and in car garages (e.g. for repairs, servicing and MOTs), Ian Crowder of the AA tells me.

Use your points to reduce or eliminate the cost of your AA membership each year. If you have many excess points after renewing your membership, consider the AA's travel insurance, which would probably work out cheaper afterwards. If you spent absolutely loads on petrol and motoring and have oceans of points, you should consider the price of the AA's car insurance minus the rewards versus the rest of the market.

You get reward points for non-motoring spending and can spend them in some other stores, but then the points and rewards have much lower value. Hence, consider the AA card for petrol and motoring, and another card for other purchases.

Cash back cards

Going beyond bog-standard, the Halifax Rewards Clarity card is for moderate spenders who consistently spend £300 to £1,000 each month. A £5 flat cashback payment effectively gives you the equivalent of 1.7% (for £300 spend) down to 0.5% (for £1,000 spend). If you spend a lot more, you could spend £300ish on this card and put the rest on another to benefit more.

High spenders can get the very complicated American Express Cashback card. To cut a long story short, you need to spend around £8,000+pa to make it more worthwhile than the Halifax card, and you have to do that with the handicap that many places don't take American Express. This card is useless for low spenders.

The Capital One World card is an unusual recommendation for me as it has a fee: £18pa. For starters you get £10 cashback every January to offset this but, to justify getting this card, be confident you'll spend at least £1,600 per year. You're paid 1% on all spending, but because of the annual fee you'll effectively then earn between 0.5% and 1%, with a progressively better effective rate the more you spend.

However, it's best to wait till January to get the card, as the £18 fee is paid each calendar year 'or part of year' in which you hold the card.

Sneaky.

On that note, please read all small print carefully for any catches. The Smile card somehow looks soothing through the headache these complicated cards have given me!

Compare credit cards through lovemoney.com