Good, bad and ugly cashback deals

Neil Faulkner takes a look at cashback deals on PCs, insurance, ISAs, loans, mobile phones and current accounts to show you how to sort the good deals from the bad.

Anything that appears to give you money off or money back seems great at first sight. But scratch below the surface and often you'll find it's not actually as good a deal as it looks...

Bad cashback deals

Here are some examples of cashback deals that are eye-catching but expensive:

Home insurance

I'll start with a deal from a cashback website. Quidco offers money back on thousands of products; for example, it says that it can get you 75% off More Than home insurance. The thing is, lots of home insurers offer discounts and yet they're often not the cheapest. The home insurance market is incredibly competitive so, whilst buying MoreThan insurance through Quidco is cheaper than going with the same insurer direct, most people will find an even cheaper insurer by comparing other providers too.

The cheapest insurer will depend on your individual profile, and it'll usually change each year, so shop around; don't just take the huge-sounding discount.

PCs

Quidco, again, is offering 2% off at PC World. Most people who know anything about PCs will tell you that PC World is very expensive. A 2% discount isn't going to dent that.

Mobile phones

It's been a while since I wrote this article on mobile phone cashback tips, but I just took a look at some mobile-phone cashback websites and found the small print for claiming your cashback to be as tricky as ever. Whilst this does work for some people, I class this as bad cashback. If you're going to go for it anyway, I suggest you stick to the websites backed by bigger, better-known brands.

Ugly cashback deals

These deals are ones to avoid like the plague:

Personal loans

Cashbacktoyou is offering £25 cashback with a Halifax loan of £1,000 to £13,000.

But do a quick search on our loans centre and you'll find that £25 is not much of a reduction, and that Halifax is still beaten by many other, cheaper loans.

Cashback is often offered directly on loans, too. Loan sharks offer very attractive cashback, knowing full well that you'll die before you pay off your debt at the interest rate they're charging. And if you do manage to get through it you'll have paid so much in interest that the cashback just wasn't worth it.

M&S Money sometimes offers cashback on its loans around April and May-time. Last year it was 25% off, making the loan pretty much a top buy. However, you got the cashback at the end of the loan term. If you pay off your loans early, you'd miss out on the cashback - but save yourself lots of interest payments.

Good cashback deals

Breakdown cover

When cashback does work, it's usually because it's an offer on the product you want and that you would have bought it anyway. If you're a big fan of the RAC, for example, you could get £20 to £40 cashback through Quidco on its breakdown service.

Current accounts

It's surprising that cashback works well with current accounts too. We've had offers of £100 cashback to join a new bank for some years. With interest rates having fallen so far, these deals perform massively better than accounts paying interest. The two currently in existence are First Direct's and Alliance & Leicester's. Both pay £100 if you switch your direct debits over and fund the account with a certain amount each month.

ISAs

This isn't a product where I expect to see cashback, but Legal & General is offering to return its annual management charges for the first year in the form of cashback. You have to sign up by 5 April 2009 and invest more than £3,600, but it has a wide range of funds, including some cheap trackers, so it's worth considering.

Credit cards

This also goes against my instincts, as credit cards are the kings of devious, expensive small print, but cashback cards really are the most flexible form of cashback there is. It's actually reward credit cards that I find are costly, as they tie you in to one retailer or group of retailers that are expensive even after the cashback. I wrote recently about the five existing cashback credit cards.

Hopefully you'll always shop around and think about why you're being offered cashback. Usually it's the shops that charge you more in the first place that offer you a small piece of it back.

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