We show you how to play your credit cards right and grab rewards as you spend, including flights, holidays, gift certificates and even cash.
One rule that most of us learn early in life is 'there's no such thing as a free lunch'. In other words, it's difficult to get something for nothing, because most transactions come with strings attached. However, if you're financially sensible and disciplined, it's quite straightforward to earn as you spend with a cashback or reward credit card.
In order to encourage you to use their credit card more than rival plastic, many credit-card issuers provide incentives based on your annual spend. For example, as you use your card, you can earn cash or loyalty points which can be exchanged for discounts on goods, flights, gift certificates, holidays, music, wine and so on.
Before I describe and analyse these loyalty and reward schemes in more detail, I must begin by stating the golden rule of cashback and reward credit cards:
Always pay off your balance in full every month, and don't transfer balances from other cards to a reward credit card. Otherwise, you'll pay interest and lose out.
In short, reward credit cards should only be used by people who don't spend more than they can comfortably afford to pay off. That's because the interest rate on purchases for a typical credit card is around 16.5% a year. In other words, if you don't repay your balance in full each and every month, then you start clocking up interest at a rate of 1.3%+ a month.
As you'll see from the table beneath, even a month's interest will far outweigh the value of any rewards you accrue over the course of a year. Thus, don't be tempted to overspend in order to build up larger rewards. Instead, make sure that every bill is paid on time by setting up a direct debit to pay off your monthly balance in full. That's the wealth warning out of the way -- now let's look at the mechanics of reward credit cards.
By my reckoning, there are over 1,300 differently branded credit cards in the UK, with the vast majority being issued by seven major banks (for the record, these firms are Barclaycard, Co-operative Bank, Halifax/Bank of Scotland, HSBC, Lloyds TSB, MBNA and Royal Bank of Scotland). Within this massive universe of choice, there are at least 75 different cards which offer some kind of cashback, loyalty points or other rewards. (There may be even more than 75, but I lost count -- and interest -- at this point!)
Don't worry, I'm not going to trawl through the details of all 75 or so reward cards -- life's far too short. Instead, I'm going to dig down into the detail of some of the most popular and financially rewarding reward credit cards, and the latest deals.
As these cards link any reward to the level of your spending, I think the best way to compare these very varied freebies is to estimate their cash value. To make things simple, I'll estimate the cash value of the rewards on offer for each £1,000 spent -- your 'gift per grand', if you like:
Reward credit cards
Sorted alphabetically
Reward card | Typical APR (%) | Incentives/loyalty point/rewards | Cash value per £1,000 spent (£) |
|---|---|---|---|
15.9 | 1 for every £1 spent at Amazon, 0.5 points for £1 spent elsewhere. £15 Amazon.co.uk gift certificate on first purchase and for every 1,500 points. | 5 | |
17.9 | 1 BA Mile for virtually every £1 spent. Companion airline ticket when you spend £20K within one year and redeem your BA Miles for a BA flight. 1,000 bonus BA Miles on first spend. | 7 | |
15.9 | Up to 4 Nectar points earned for every £1 spent at participating Nectar sponsors, (2 points on the Nectar Credit Card and 2 points on the Nectar loyalty card) 1 Nectar point earned for almost every £1 spent elsewhere. | 5.40 | |
16.9 | Return flight on your first purchase within 90 days. Additional return flight if you spend £5,000 or more each year. | 12 | |
16.9 | 200 points on first purchase (to be made before 01/09/07) and double points for first 6 months after account opening. One buy and fly! point for every £10 of purchases appearing on the card statement. Points will be valid for 3 years from when they are added to your account. | 4 | |
GM Card | 14.9 | Earn 3 Rebate Points per £100 for discounts on Vauxhall and Saab cars | 30 |
Goldfish Card | 15.9 | Goldfish points can be redeemed for vouchers or services at many outlets. | 7 |
John Lewis Partnership Card | 16.9 | Earn 1 point for every £1 spent at John Lewis, Waitrose or Ocado.com. Earn 1 point for every £2 spent elsewhere. 500 points are worth £5. | 5 |
15.9 | 1 Airmile for every £10 spent. Spend miles on flights, hotels, car hire, Eurostar trips, family days out & leisure activities. | 7 | |
Marks & Spencer &MORE Card | 17.9 | 1 point for every £1 spent at M&S and for every £2 spent elsewhere. | 5 |
15.9 | 1 point for every £1 you spend. Points can be redeemed on flights, vouchers, holidays or days out. | 3 | |
SkyCard | 16.9 | SkyPoints at a rate of 1.26% and Sky discounts. | 12.60 |
SonyCard American Express | 15.9 | Up to 8,200 free Sonycard Pulsebeats on first purchase. | 5 |
15.9 | Instant discounts, including 10% off at Virgin Megastores, Virgin Holidays, Virgin Wines, Virgin Insurance, Virgin Trains and 75% off joining fee at Virgin Active. | N/A |
Rather than overload your brain with another table of figures, I'll review the market for cashback credit cards in a follow-up article. However, if you can't wait that long, then visit our cashback credit card centre, which includes the American Express Platinum Credit Card, which is one of the Best Buys. To search the entire market for cashback cards, simply click on the tab marked, "Search All Credit Cards".
One final word of warning: it is possible that having a cashback or reward credit card could encourage you to spend more than you would were you to pay by other means, such as cash or a debit card. Indeed, debt charity Credit Action estimates that using a credit card can encourage you to spend up a third (34%) more. So, please do take it easy and live well within your means!
More:Do Credit-Card Fees Stack Up? | Chop Your Interest Rate To Under 5%