Christmas shopping in a cashback wonderland: The credit cards that reward people who clear their debts each month

You can give yourself a present this Christmas. Over 80 "incentive" credit cards are on offer in the run-up to the festive season, many with cashback on all purchases.

Every pound you spend on these cards is totted up at the end of a year and a proportion of that total - usually 0.5 to 1 per cent - is returned to you by way of a cheque or credit.

In a recent survey by card provider Morgan Stanley, perks such as cashback were found to be the prime consideration of nearly a third (29 per cent) of cardholders who had switched or were considering switching their plastic - up from 7 per cent in last year's annual survey.

This change of heart is partly down to more people paying their balances off in full each month, so they can look beyond the rate of interest charged by the card provider.

Figures from Apacs, the payments body, suggest that 59 per cent of cardholders cleared their debt every month last year - up from 56 per cent in 2004.

There are some real benefits available to "non-borrowing" cardholders. For example, near the top of the "best buy" tables of both Moneyfacts and price-comparison website Money- supermarket.com sits Morgan Stanley's Platinum Cashback card. This offers "triple" cashback from the day you open the account to 1 February 2007. Over the festive season and all through the January sales, you will get 3 per cent back on the first £2,000 of purchases and 1.5 per cent thereafter up to your personal credit limit. So put £2,500 of Christmas purchases on the card and you would receive £67.50.

But if you're one of the remaining 41 per cent who carry a balance on their credit cards, you shouldn't even be considering a cashback deal, says Andrew Hagger of financial analyst Moneyfacts. "For these customers, finding the cheapest rate or taking an initial 0 per cent deal should still be the first consideration. You have to spend a fair amount to receive any significant cashback, and the monthly interest you pay with a balance will wipe it out anyway."

Equally relevant is the old adage that you don't get something for nothing, and there are several snags with cashback credit cards.

First, the initial rate of cashback usually applies only up to a certain spending cap. "Card providers offer 'teaser' deals to get customers interested for the first purchases, and then reduce the rate," says Robert Kenley, head of credit cards at Moneysupermarket.com.

"For example, the Yorkshire building society Classic card offers 1 per cent cashback on the first £2,000, but if you spend more than this during the year, the level is reduced to 0.5 per cent [on the rest]."

Some cards impose a minimum you must spend before the benefit kicks in. Lloyds TSB Platinum offers 1 per cent within the first three months of the account opening - but only if you spend over £250 in this time.

Although it is unlikely to worry many Christmas shoppers, a spending cap can also apply. Morgan Stanley's card stops paying cashback on purchases that take your balance over £20,000.

And there are very few cashback credit cards that offer introductory 0 per cent interest for any significant period.

"The maximum will be six months, which is pretty poor by today's standards," says Mr Kenley.

Those that do come with a six-month interest-free period are Yorkshire's Classic Visa card and the MasterCard from Leeds building society, which pays 0.5 per cent in cashback on all purchases made.

As card providers rein in their generosity, balance-transfer fees are becoming common on 0 per cent deals. Yorkshire's Classic Visa charges 2 per cent on balance transfers, with a cap of £50.

Bear in mind also that cashback applies only to new purchases made, not the balances carried over, and that the interest rates on cashback cards are generally not as competitive as those on standard cards.

A warning to all cardholders: try not to take cash out of the wall on any credit card. The average APR on a withdrawal is a hefty 21.27 per cent, according to financial advice website Moneyexpert.com, with only 11 providers charging under 15 per cent. The average minimum fee for a single withdrawal, says Moneyexpert.com, is £2.60.

News
peoplePair enliven the Emirates bore-draw
Arts and Entertainment
tvPoldark episode 8, review
News
Britain's opposition Labour Party leader Ed Miliband (R) and Boris Johnson, mayor of London, talk on the Andrew Marr show in London April 26
General electionAndrew Marr forced to intervene as Boris and Miliband clash on TV
News
news
Finacial products from our partners
Property search
  • Get to the point
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    Ashdown Group: Treasury Assistant - Accounts Assistant - London, Old Street

    £24000 - £26000 per annum + benefits : Ashdown Group: A highly successful, glo...

    Ashdown Group: Business Analyst - Financial Services - City, London

    £50000 - £55000 per annum: Ashdown Group: Business Analyst - Financial Service...

    SThree: Trainee Recruitment Consultant

    £18000 - £23000 per annum + OTE £45K: SThree: At SThree, we like to be differe...

    SThree: Trainee Recruitment Consultant

    £20000 - £25000 per annum + competitive: SThree: Did you know? SThree is the o...

    Day In a Page

    General Election 2015: Chuka Umunna on the benefits of immigration, humility – and his leader Ed Miliband

    Chuka Umunna: A virus of racism runs through Ukip

    The shadow business secretary on the benefits of immigration, humility – and his leader Ed Miliband
    Yemen crisis: This exotic war will soon become Europe's problem

    Yemen's exotic war will soon affect Europe

    Terrorism and boatloads of desperate migrants will be the outcome of the Saudi air campaign, says Patrick Cockburn
    Marginal Streets project aims to document voters in the run-up to the General Election

    Marginal Streets project documents voters

    Independent photographers Joseph Fox and Orlando Gili are uploading two portraits of constituents to their website for each day of the campaign
    Game of Thrones: Visit the real-life kingdom of Westeros to see where violent history ends and telly tourism begins

    The real-life kingdom of Westeros

    Is there something a little uncomfortable about Game of Thrones shooting in Northern Ireland?
    How to survive a social-media mauling, by the tough women of Twitter

    How to survive a Twitter mauling

    Mary Beard, Caroline Criado-Perez, Louise Mensch, Bunny La Roche and Courtney Barrasford reveal how to trounce the trolls
    Gallipoli centenary: At dawn, the young remember the young who perished in one of the First World War's bloodiest battles

    At dawn, the young remember the young

    A century ago, soldiers of the Empire – many no more than boys – spilt on to Gallipoli’s beaches. On this 100th Anzac Day, there are personal, poetic tributes to their sacrifice
    Dissent is slowly building against the billions spent on presidential campaigns – even among politicians themselves

    Follow the money as never before

    Dissent is slowly building against the billions spent on presidential campaigns – even among politicians themselves, reports Rupert Cornwell
    Samuel West interview: The actor and director on austerity, unionisation, and not mentioning his famous parents

    Samuel West interview

    The actor and director on austerity, unionisation, and not mentioning his famous parents
    General Election 2015: Imagine if the leading political parties were fashion labels

    Imagine if the leading political parties were fashion labels

    Fashion editor, Alexander Fury, on what the leaders' appearances tell us about them
    Phumzile Mlambo-Ngcuka: Home can be the unsafest place for women

    Phumzile Mlambo-Ngcuka: Home can be the unsafest place for women

    The architect of the HeForShe movement and head of UN Women on the world's failure to combat domestic violence
    Public relations as 'art'? Surely not

    Confessions of a former PR man

    The 'art' of public relations is being celebrated by the V&A museum, triggering some happy memories for DJ Taylor
    Bill Granger recipes: Our chef succumbs to his sugar cravings with super-luxurious sweet treats

    Bill Granger's luxurious sweet treats

    Our chef loves to stop for 30 minutes to catch up on the day's gossip, while nibbling on something sweet
    London Marathon 2015: Paula Radcliffe and the mother of all goodbyes

    The mother of all goodbyes

    Paula Radcliffe's farewell to the London Marathon will be a family affair
    Everton vs Manchester United: Steven Naismith demands 'better' if Toffees are to upset the odds against United

    Steven Naismith: 'We know we must do better'

    The Everton forward explains the reasons behind club's decline this season
    Arsenal vs Chelsea: Praise to Arsene Wenger for having the courage of his convictions

    Michael Calvin's Last Word

    Praise to Wenger for having the courage of his convictions