Money: What is free cash worth?

Money-back offers are the latest credit card loyalty perk. Isabel Berwick asks if customers will notice the difference

WHEN does a toaster cost pounds 9,000? When it's bought using Barclaycard Profile points.

That's how much you'll have to spend on your Barclaycard to buy a toaster worth about pounds 22. Unsurprisingly, Barclaycard's loyalty points scheme comes near the bottom of this month's Which? magazine survey of the perks offered with credit cards.

Despite this less than generous points scheme and an interest rate (22.9 per cent APR) which is never going to make the best-buy tables, Barclaycard still issues 29 per cent of all UK credit cards. But many customers are starting to get picky about their loyalty points. They want to spend their rewards on something useful.

The massive success of the Goldfish card, offering money-off vouchers for shops including Boots and Marks & Spencer as well as your gas bill, has proved that cash is still king, even when you are using plastic. There are 700,000 Goldfish cards in circulation and a growing number of firms signing up to the voucher scheme. Half the Goldfish customers who have redeemed their points so far have chosen to knock money off their gas bills.

Some card issuers have cut out the voucher stage and are just giving money back to their customers. It's an American idea first copied in the UK by Alliance & Leicester last year. It is such a successful gimmick that American Express has decided to launch a mass market moneyback card: a major advertising campaign for the Blue Card starts tomorrow.

Debra Davies, head of credit cards at American Express, says the firm's research showed that customers want easy-to-understand perks from credit cards. The Amex Blue Card offers 1 per cent cash back on everything you spend, so spending pounds 1,000 on the card would earn you a pounds 10 credit. There'll be a special offer in November, when cardholders will get back 5 per cent of what they spend. The interest rate is 9.9 per cent for six months, as it is for transferred balances from other cards: it then rises to 19.5 per cent.

There are only two other cards offering to repay you cash: Alliance & Leicester and Birmingham Midshires. The Alliance & Leicester paid out pounds 4.6m in cashbacks last year. The card offers 0.5 per cent back on everything you spend up to pounds 3,000, and 1 per cent for everything on top of that. Cardholders also get double points whenever they use the card in a range of stores. The APR is 17.9 per cent.

A&L's Geoff Seymour says that the average payout last year was pounds 50, but some customers built up rebates of pounds 400 by using the card to pay for almost every purchase.

Birmingham Midshires' card is much less attractive, only offering a miserly 0.33 per cent cash back on the first pounds 3,000 you spend. The APR is 10.9 per cent for the first six months after the card is issued, then going up to 19.9 per cent.

At first glance the Amex Blue Card looks better than the existing deals, but comparisons are not straightforward. The biggest drawback of any American Express product is that you can only use it in businesses that accept Amex cards. American Express runs its own payment network rather than being part of the Visa and Mastercard schemes. If you own a Visa card you can use it in 14 million outlets worldwide, while Mastercard is accepted in 13 million places. American Express users are restricted to 4 million outlets.

Second, the Blue Card has a pounds 12 annual fee, which means you'll have to spend pounds 1,200 on the card before you've paid off the fee and started to make money from the cash back. And if you want to choose where you spend your rebated cash, A&L is a better bet. The bank sends out cheques once a year, but the Blue Card will credit cardholders' accounts with their rebates once a year, so you have to put the money towards your credit card bill.

If you are a committed Sainsbury's shopper, the supermarket's own Visa card is the best buy among those offering cash rebates or discount vouchers. Sainsbury's offers a range of perks, including a good-value Air Miles collection scheme. When you use the Visa in conjunction with a Reward card in Sainsbury's stores you get a 2 per cent return on your spend. So to get a pounds 2.50 discount off your shopping you'd only have to spend pounds 125 in the supermarket.

There's no point getting excited about a few "free" pounds if you don't pay off your card each month. Anyone who carries a large balance from month to month should be using the cheapest card, which is likely to be a no-frills offer. Capital One is offering 6.99 per cent APR until January next year, then rising to 17.9 per cent.

What do you get from cards offering cash and money-off vouchers?

Card APR% Perks offered Notes

Alliance & Leicester 17.9 0.5%cash back. 1% after Rebate sent as cheque. 1% rebate

Moneyback 0500 868686 you have spent pounds 3,000 + on all cash spent in selected outlets

Amex Blue 9.9 introductory 1% cash back Rebate credited to Amex account.

0800 700111 9.5 standard pounds 12 annual fee

Goldfish 12.9 transfer 1% rebate towards store/bill discounts.

0345 609060 19.8 standard

Sainsbury's 19.7 1% rebate as Reward points Rebate given as money- off shopping in

0500 405060 in Sainsbury's stores. 0.5% stores or vouchers for discounts or extra elsewhere Air Miles