New cashback card shakes up the market

A new cashback card launches today. How does it compare against its closest rivals?

If you’re looking for a brand new cashback credit card, I have some good news.

The choice of cards on offer has never been greater. There are now three serious contenders in the cashback card market, thanks to the launch of a brand new card today from Santander.

The bad news is, none of them are particularly straightforward. This makes it difficult to compare the different cashback deals on offer.

Luckily, we’re here to help you!

First of all, here’s a quick summary of the top three cards available:

The American Express Platinum Card

American Express recently changed the way that cashback is earned with this card. You now earn 2.5% cashback on everything you spend in the first three months, up to a maximum of £100 cashback (after that, you’ll earn 1.25% on everything you spend).

After the first three months are up, the cashback rate drops to 1.25%. Again, you’ll earn this rate regardless of how much you spend.

Amex will also pay 2.5% cashback every year, during the month following the anniversary of the day you took out the card. So you need to remember the date you took it out!

But sadly, in a new move, Amex will also now charge you £25 a year as a fee for using this card. So, after the first year, you need to spend £2,000 every year on your Amex card just to break even with the fee. But in the first year, you’d only need to spend £1,000 in the first three months to pay off the fee.

(This fee doesn’t currently apply to anyone who has the old version of the card, unless you choose to switch.)

There are two other key points you need to bear in mind with this card:

-          Only applicants with a minimum household income of £30,000 will be accepted. You also need a good credit record.

-          American Express is not as widely accepted as Mastercard and Visa cards, although most places do accept it nowadays.

The Capital One World Card Mastercard

The Capital One World Card Mastercard pays 5% cashback for the first 99 days, up to a maximum of £100 cashback (so there’s no point spending more than £2,000).

After the first 99 days are up, the amount of cashback you earn depends on how much you spend. You earn:

-         0.5% cashback if you spend up to £6,000 a year

-         1% cashback on all spend between £6,000 to £9,999 a year

-         1.25% cashback on all spend above £9,999 a year

So if you spend £10,000 a year, you’ll earn £70 cashback. But if you only spend £5,000 a year, you’ll only earn £25 cashback. In other words, this card is best suited to big spenders.

Finally, it’s worth bearing in mind that this card is aimed at borrowers with a “perfect” credit history. Ideally, you should also be a homeowner and you are more likely to be accepted if you earn at least £20,000 a year.

The Santander 123 card

Now, let’s look at the new kid on the block: the Santander 123 cashback card, which just launched today.

It offers:

-          1% cashback on supermarket spending

-          2% cashback on department store spending

-          3% cashback on petrol (up to a maximum of £9 cashback a month, which is a maximum spend of £300 a month on petrol)

Sounds simple? In practice, it may not always be obvious to you what rate you will earn where. For example, Santander pays the petrol cashback rate (3%) at supermarket petrol stations, but the supermarket cashback rate (1%) at Marks & Spencer, not the department store cashback rate (2%), even if you are buying clothes.

What’s more, this card has a £24 annual fee. So, just to break even, every month you’d need to spend a minimum of:

-         £200 at the supermarket, or

-         £100 at a department store, or

-         £67 on petrol.

But on the plus side, your cashback is also paid monthly, so it’s easy to keep track of and it means you’ll get a nice little reward every month. The other cards will only hand over your cashback once a year.

Finally, it’s worth noting that this card is aimed at a much bigger market than the other two cards, which require a spotless credit history. Santander says it will accept borrowers who earn as little as £7,500 a year (subject to full credit checks). But if you earn this little, it’s possible you won’t spend enough on the card every year to earn the £24 fee.

Which card pays the most cashback?

Unfortunately, to accurately compare the new Santander card with the other cards, you need to have a really good idea of how much you spend at different places every month. I’d recommend using our free spend tracker tool to figure this out, as it will break down your spending into different categories for you. Then you’ll be able to see at a glance which card is right for you.

In this example, I’ve based the spends loosely on a report by the Office of National Statistics into the average family’s spending per month, but I’d strongly recommend you do your own analysis before deciding which card to apply for. And remember: always pay off the balance on your cashback card in full every month. Otherwise, the interest you’ll be charged will cost you far more than the benefits of any cashback you earn.

Example:

I spend £80 a month on petrol, £280 a month at the supermarket, £30 a month at department stores, £100 a month at restaurants and £200 a month elsewhere on the high street - so £690 in total. Which card is the best for me? 

As you can see, Capital One pays the most cashback in the first year (£132.10), while American Express pays the most cashback the year after that at £78.50 a year. The new Santander 123 card lags behind, paying just £45.60 a year.

But what if you weren’t able to spend quite as much on your American Express card, because it isn’t accepted everywhere?

Here’s how the table changes if you assume that up to £100 you spend ‘elsewhere on the high street’ every month cannot be put on your American Express Platinum card:

Again, the Capital One World Card Mastercard is the winner in the first year and Amex the winner the year after that. The Santander card remains in bottom place.

Of course, if you spend £300 a month on petrol, you’d earn an extra £86.40 with Santander, bringing its total cashback to a much more competitive £132 a year. Alternatively, if you spend an extra £3,000 once a year - timed to take place during your ‘anniversary month’ - you’d earn another £75 a year with American Express, taking it flying to the top of the tables.

So, at the end of the day, the right card for you will depend on what you spend your money and when. Good luck working it out - and don’t forget to check out our spend tracker tool!

Compare cashback credit cards at lovemoney.com

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