Earn cashback from your credit card

Who wouldn't want to get some cashback just for using their credit card to pay for their shopping?

With the festive season almost upon us, credit cards everywhere are taking a hammering. No matter how tight our budgets, we’ll always spare some cash for Christmas.

But wouldn’t it be great if we could feel we are earning even a little while we spend?

Earn money while you spend

Seasoned cardholders know we can – and that’s by using a cashback credit card. These cards simply offer a percentage of your spend back as cash (up to a limit). Then, typically when the anniversary of your card is reached, you receive the cashback either as credit on your account, or as a cheque.

Change your spending habits

Sounds great, but what if you don’t really use your credit card? Well, it could be worth changing your ways.

Simply switching to paying for your £60 weekly grocery shop (£3,120 per year) with a 1% cashback credit card, rather than debit card would earn you £31.20 in cashback, per year.

Do the same when paying to fill up the car, purchasing clothes or even when buying the newspaper and you can see how some seasoned card users look forward to £150 or more in cashback per year.

Extra protection

And there are extra benefits, as thanks to Section 75 of the Consumer Credit Act, if you spend £100 or more and pay by credit card, in the UK or abroad, your card issuer is equally liable if something goes wrong.

ALWAYS pay off your balance in full

But woe betide he who leaves a balance on his cashback credit card.

With APRs of around 20%, fail to pay off that balance in full just once and you’ll be slapped with interest and charges that could far outweigh the cashback earned (which is what the card companies are hoping for, of course).

So the simple rule is – when you sign up for a cashback card, set your payment option to “pay off in full” by direct debit. Then you’ll never forget.

And if you’re not 100% sure you can pay off your card in full each month, stick to a debit card, or at least go for a 0% purchase card instead.

So let’s take a look at three of the best cashback credit cards on the market at the moment:

1. Capital One - MasterCard

Capital One World MasterCard currently pays a very healthy 5% cashback on all spending in the first 99 days of use, for new customers. The maximum amount of cashback that can be earned in this time is capped at £100, which means you'd need to spend £2,000.

After the 99 days are up, the cashback rate will decrease to the following:

Plus you’ll receive £10 (credited to your account) within 45 days of opening as a thank you bonus!

Spend £6,000 in year one (assuming a £1,500 spend in the first 3 months) and you’d earn £97.50 cashback (which is payable each January).

Spend another £6,000 in year two and you’d earn just £30.

2. Amex Platinum

The American Express Platinum card offers a similar system to the Capital One card, though instead of paying 5% for the first three months it pays a less generous 2.5% (1.25% thereafter). The maximum cashback that can be earned in this period is also £100, which would mean spending £4,000.

Anniversary bonus

Should you spend over £10,000 on the Platinum card in the year, you will receive 2.5% cashback on any spending during your card’s anniversary month, which is uncapped. But, and here’s the big but, there is a hefty £25 annual fee to pay.

Spend £6,000 in the year (assuming a £1,500 spend in the first 3 months) and you’d earn £93.75 in cashback – or just £68.75 after the fee!

And spend the same again in year two and you’d earn £75 – or £50 after the fee.

3. Santander 123 Cashback MasterCard

If, like me you seem to spend shocking amounts of money at the supermarket, the Santander 123 card may prove interesting.

Cashback here is only payable on money spent with particular retailers and is paid at three different rates:

All of the big names (Tesco, Sainsbury’s, John Lewis, Debenhams, etc) are accepted retailers (you can find the comprehensive list here). Cashback is capped on fuel spend of up to £300 per month, and you can try out its nifty calculator to see how much you could earn.

However, it too has a hefty annual fee of £24.

Spend £6,000 in year one (assuming £250 at supermarkets, £200 at petrol stations and £50 at department stores per month) and you’d earn £114 in cashback, or £90 after the fee (and the same again in year 2).

Which to choose?

So which one should you choose? The Capital One has a fantastic initial cashback rate, but as it is tiered thereafter, cashback earned is only really impressive in the short term.

The Amex card, too, offers a good initial cashback rate, and it pays a great straight 1.25% on any spending thereafter.

However, you do have to cover that hefty £25 fee, plus, being Amex, it isn’t as widely accepted as MasterCard (or Visa). It could be a good option for bigger spenders, particularly for the longer term.

The Santander card is perhaps the most straightforward (provided you shop at the accepted retailers) and pretty lucrative for those with high fuel bills. But with that irritating £24 fee to cover you also need to be a pretty big spender.

And of course, you may spend far more (or less) than my examples, which could make your result very different. Work out your monthly spending and calculate the amount of cashback you could earn, to decide which card suits your needs best.

But if you’re a sensible spender, who always clears that balance in full each month, earning money as you spend may just prove very attractive!

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