Beginner's Guide To: Cashback credit cards

It's a common misconception that the benefit of a credit card to those who clear their balance each month, is that their money stays in their current account earning interest for a bit longer. There are, however, deals out there which enable you to earn money each time you use them – so effectively profit from your spending. This week we take a look at cashback credit cards.

How does cashback work?

Cashback credit cards reward you each time you spend. The current market leader is the American Express Platinum Cashback card. It pays 5 per cent cashback for the first three months, or up to a spend of £2,000 – this means you could earn £100 if you spent the maximum £2,000 during that period. The cashback rate then drops: you earn 0.5 per cent on the next £3,500 spent on the card, 1 per cent on spending between £3,501 and £10,000 and 1.5 per cent above £10,000.

The cashback you earn accumulates and is either credited to your credit card account once a year, or you'll be sent a cheque for the amount you've accrued.

Are there any catches?

Cashback credit cards are only worth considering if you clear your bill in full each month. If not, the interest you'll be charged on the outstanding balance will far outweigh the value of the cashback reward.

What about alternatives?

Cashback isn't the only option if you are looking for a card that rewards you for spending. A number of other cards offer similar benefits, but rather than earning cash each time you use the card you accumulate points, including Nectar or Tesco Clubcard points, which can be exchanged for things such as shopping vouchers, magazine subscriptions and days out. Another popular reward scheme is Airmiles, where you collect "miles" that can then be used pay for flights.

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