Will cashback on cards lead you into temptation?

It's the reward that most people look for but it works only if you can clear your debt each month. Emma Lunn surveys the best deals
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The Independent Online

Credit cards that offer users a percentage of the money they spend back in cash have taken over from 0 per cent deals as the marketing tool of the moment. But you'll lose more than you gain if you chase the rewards too hard.

According to research by Abbey, cashback is the feature that most people look for in a credit card. The bank says that one in five want to see a return on their spending, against 16 per cent who want plastic with a low annual percentage rate (APR).

It is probably not a coincidence that Abbey is the latest provider to throw its hat into this ring. New card customers with the bank will benefit from 5 per cent cashback on the first £1,000 of purchases from major supermarkets. However, the 5 per cent offer finishes at the end of January, and with Christmas approaching, it could be all too tempting to overspend.

"Generally, it's not a great idea to purchase food on credit, but anyone doing this should take advantage of the cashback while ensuring that they clear their balance each month," says Sean Gardner, chief executive of comparison site MoneyExpert.com.

Fail to pay off the bill and cardholders can find that any cashback gained is wiped out by interest payments, Mr Gardner adds.

Samantha Owens from financial analyst Moneyfacts reckons the Capital One World MasterCard is a good long-term bet for reward-hungry consumers. It offers 4 per cent cashback on purchases for the first three months and 1 per cent after that. The card has a typical APR of 15.9 per cent.

"Spending £1,000 over the three months will earn you £40 – not a bad return," adds Ms Owens.

Last week, American Express upped its cashback offer. New applicants will now get 5 per cent for the first three months, as opposed to 3 per cent previously. But this introductory rate is available on up to £4,000 of spending only. Should this threshold be reached in the initial three months, cashback will then be earned at 1 per cent.

After the introductory period is up, the card pays 0.5 per cent cashback on the first £3,500 a year, 1 per cent between £3,500 and £10,000 and 1.5 per cent above that.

Meanwhile, Yorkshire building society's Visa card offers 1 per cent on spending up to £2,000 a year and 0.5 per cent afterwards. It also features 0 per cent interest on purchases for six months.

If someone were to spend £20,000, spread evenly across the year, on the Capital One World MasterCard, they would net £350 in cashback in the first year and £200 in subsequent years. With Amex having increased its offer, a consumer spending the same amount on its card would scoop £410 cashback in year one, and £233 in following years. But Amex is accepted in fewer shops and restaurants than MasterCard.

Martin Lewis, founder of MoneySavingExpert.com, sounds a note of caution about getting carried away on credit cards: "Withdraw money and you'll often be charged a fee and heavy interest. The rule is simple: never use them at cashpoints." He adds: "It's no coincidence that many cashback cards have top balance-transfer offers; they want to tempt you both to spend on the plastic and shift debts to it."

Cash machine withdrawals are usually charged at a higher interest rate than purchases. Barclaycard's platinum card, for example, has a typical APR of 14.9 per cent on purchases but withdrawals are charged at 27.9 per cent – nearly twice the headline rate.

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