Earn 5% Cashback!

With the festive season approaching, find out how you can earn a whopping 5% cashback on all your spending until Christmas.

A friend of mine boasted to me at the weekend that she's finished her Christmas shopping already. Being an organised girl she's taken advantage of a number of early Christmas offers, snapping up presents in "3 for 2" deals and taking advantage of all kinds of discounts! She admitted her credit card was slightly heaving, but with two pay packets still to come before the end of the year she knows she can comfortably pay for it all before the end of the year.

She's got a good point, too. If more of us planned ahead and started our Christmas shopping earlier we could spend less (deals and discounts are typically never available in late November/December, plus shops have more stock at the moment) and budget to pay for it all before January.

But the best thing, she told me, was that the credit card she'd used for her spending was her new Capital One Cashback With World MasterCard, which gives a whole 4% of her spending for the first three months back as cash (and one per cent thereafter). Not bad!

Now as she knows I'm a huge cashback credit card fan -- after all, how often can you be paid to spend? Indeed, previous year's cashback has paid for a CD player, and a good proportion of an iPod in my home!

Cashback Credit Cards

But for those that aren't sure how they work, here's a very quick explanation. Basically you use the credit card for all of your spending, and for every £1 spent, you'll get a certain percentage (depending on the card typically between 0.1% and 4%) back as cashback. This tots up over the year and when you've had the card a year you'll usually be sent a cheque for the cashback you've earned. Simple, eh?

Of course it goes without saying that cashback cards are for the disciplined only -- if you don't pay off that balance in full each month the interest accrued will wipe out your cashback. But if you're a canny Fool, you could make a decent sum of money.

Maximise that cashback!

Now, of course good Fools can refine things a bit to maximise their cashback earned even more.

1.    Firstly, you need to put every pound spent on that credit card. This is a funny mindset to get your head around; after all, paying £1.40 for a newspaper on your card in WHSmith can feel a bit silly. But in my experience shops rarely mind (probably because so many other people now do the same thing!).

What's more, some energy companies, nurseries and other service providers allow payment by credit card, so you could move practically all spending to the card (although check first that you won't be paying more for this privilege).

2.    Depending on the credit card you've chosen, you need to work out when is the best time to make any large purchases (where possible). Many cards (like my friend's Capital One card) have bonus periods when you'll earn more cashback. Make large purchases in this time and you'll rack up more cash.

3.    If you have a partner you trust you can potentially make even more cashback by taking out an additional card and encouraging her/him to use it for their spending, too.

There are other benefits to using a credit card for purchases too with cards offering Section 75 protection, plus many card companies offer free purchase cover should you accidentally leave your shopping on the bus!

Earn 5% cashback

Clearly, if you have a lot of shopping to do this Christmas, you could do worse than to take out a cashback credit card to pay for it all. What's more, I've actually found a card that beats the Capital One card my friend has, in the short term at least.

The American Express Platinum Moneyback card has just increased the cashback rate to a whopping 5% for the first three months, after which you'll earn 0.5% on spend up to £3,500, 1% for spending from £3,501-£10k and 1.5% thereafter. What's more, cardholders also have 90 days free purchase protection (should they lose or damage eligible items bought with the card) refund protection and an online fraud guarantee.

Now it's worth noting that the 5% cashback period has a condition -- the maximum cashback that can be earned in this time is £200 (after which you'll revert to the tiered system). The Capital One card on the other hand has no maximum, and reverts to 1% cashback when the first three months are up. It's therefore worth working out your pattern of spending before choosing which card to apply for.

But according to Moneyfacts, if you were to spend an average of £1,000 per month on the card for a year, you would be looking at a cheque for £210 with Capital One card, and £247.50 with the Amex card, which does show that both cards offer a great way of earning cashback.

So if you're a disciplined credit card user that would like to earn some money while they spend, check out cashback cards like my friend did and see how much you could make. After all, it's not bad to be paid while you spend!

More: Apply for a cashback card in our Credit Card Centre| 0% vs Cashback Cards