Reward and cashback credit cards: how did the deals get so bad?
Reward credit cards are noticeably worse than they were five years ago. Sue Hayward explores what happened to them.
We’ve noticed a lot of changes to reward credit cards in recent years.
0% balance transfer deals and new purchase offers last twice as long as they did five years ago, so why are rewards and cashback increasingly facing the chop?
MBNA recently announced it is scrapping rewards and cashback on two of its cards – both the MBNA Rewards Amex Credit Card and the MBNA Amex Credit Card with Cashback.
And it's not the only one. Since 2012, cashback rates have been slashed across many credit cards and rewards have eroded.
Poor cashback rates
Where you could once bag a 3% cashback rate as standard and up to 5% on a short-term introductory offer, today some cards offer cashback rates of just 0.25% while even the ‘best’ ones on the market come in at around 1% unless you’re prepared to stump up a fee.
One of the most generous long-term deals is Asda’s Cashback Credit Card which pays 1% on Asda spends and 0.5% elsewhere. But to boost this to 2% on Asda shopping and 1% elsewhere you’ll need its Cashback Plus Credit Card and pay £3 a month for the privilege.
And Tesco made customers spend twice as much to get the same number of loyalty points on non Tesco shopping with its Clubcard Credit Card two years ago.
What went wrong with rewards and cashback?
Gone are the days when people could rake in a decent amount of cash from being savvy with credit card spending.
Reward credit cards are still around but what most offer is pretty paltry compared with their heyday of generous perks.
It was an EU ruling back in 2015 that put a big nail in the coffin of reward credit card perks. This put a cap on the fees that card companies can charge retailers for accepting their cards.
Debit and credit card providers were previously able to make money from retailers every time customers paid by card.
This was because the retailers had to pay card companies a fee, known as an interchange fee, in exchange for accepting cards in their outlets.
Prior to 2015, credit card companies were able to rake in around 0.8% a time, but from the end of 2015 these rates were capped at 0.3% for credit cards and 0.2% for debit cards.
“The introduction of the EU cap on interchange fees is estimated to have cost credit card companies around £750 million each year”, says Richard Koch, head of cards at UK Finance, which represents companies in the banking and finance sector.
“As a result many providers have needed to change their reward programmes, including cashback”.
However, this has proved costly for customers, who now “find it hard to get something back on their everyday spending as the cashback credit card market has eroded”, according to Rachel Springall from Moneyfacts.co.uk, a financial information company.
Some of the top cashback credit cards, according to Moneyfacts, now offer just 0.25% and another six cards of its top reward credit cards offer a standard rate of 0.5%.
Card companies were always unlikely to make money from savvy cardholders who played the system by paying for purchases, banking the cashback and paying off the bill, in full, on time, every month.
Today’s generation of cashback and reward cards come with a sting in the tail, as many charge far higher interest rates than five years ago.
According to Moneyfacts you can now pay up to 49.8% interest on cashback cards, like the Santander World Elite Mastercard, compared with top interest rates of 34.5% in 2012.
Cashback more difficult to come buy?
Previously, most cards had some kind of cap on cashback. That means you couldn’t offer to put the shopping for your entire street on your credit card and get your neighbours to cough up, while raking in thousands in cashback.
However, it was still a relatively easy way to boost your bank balance, especially when paying for bigger purchases like flights and holidays.
Nowadays while you can still get points, cashback and rewards you’ll need to work harder to find them (head over to our round-up of cashback cards to see the best of what's still on offer).
Other cashback options
Unlike previous deals which paid a percentage of your spending, some banks now offer schemes where you can earn cashback on debit card spending, but deals are usually aimed at specific retailers or tailor made offers rather than cashback across the board.
Both Lloyds and First Direct customers can take advantage of cashback deals on debit cards as well as credit cards.
First Direct customers with Visa credit and debit cards can earn cashback with retailers including Boots, Costa, H&M, Esso and Lidl. You’ll either earn a percentage of your spending or a fixed amount, depending on both the retailer and how much you spend.
Lloyds current account holders can earn up to 15% cashback with its Everyday Offers scheme when shopping with its debit or credit card. Retailers include Superdrug, Morrisons, New Look and Hilton with offers based on your previous spending habits.
Instead of cashback offers being restricted to spending on cards, accounts like the Santander 123 Current Account have jumped on the bandwagon offering customers up to 3% cashback when paying bills.
However, there are hoops to jump through to activate this.
The account demands £500 a month minimum funding along with two active direct debits before you can get any cashback.
Plus, there’s a monthly £5 fee. Santander’s online customers can also earn cashback with Retailer Offers where you can earn up to 15% cashback shopping at selected stores.
Don't forget cashback sites
Finally, there is another way to earn cashback that doesn't involve your bank at all. Websites like Quidco and TopCashback work by tracking your purchases and paying a percentage back on what you buy.
These can earn you hundreds of pounds a year if used whenever possible, so it is still possible to earn a decent reward on your spending – just not on credit cards, it seems.
Find even more cashback deals at the loveMONEY credit card comparison centre
Up next:
Best all-in-one credit cards revealed
John Lewis credit card fees hiked – is it worth keeping?
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