Credit card cashback slashed - beat the cuts
Cashback rewards on credit cards are being cut dramatically. New European laws mean getting people to spend more on their credit card has become less lucrative, so a number of providers have taken a scythe to their cashback offerings. There are, however, three steps to ensure you still get a good deal.
The source of the change is that the EU has capped 'interchange fees' - which card companies charge retailers every time someone uses their card in a shop. The idea is to cut costs for businesses - and stop them passing these costs onto shoppers. However, the consequence of the change is that people paying by card suddenly gets less profitable for credit card companies, so there's less of a vested interest in encouraging people to use cards by offering cashback.
As a result, a number of cards have had their reward rates cut dramatically - including RBS, Halifax, NatWest, Capital One and American Express. However, you can still get a good deal if you follow the three golden rules.
1. Choose wisely
There are still some reasonable rates on offer. American Express has cut its rates, but remains among the most generous. There's 5% cash back on spending in the first three months (up to a maximum of £100). After that you'll get 0.5% on the first £5,000 and 1% on sums above that.
Nationwide, meanwhile, offers 0.5% cashback (although you have to have a separate Nationwide account to qualify for the card).
Some companies have used different structures to offer higher rewards. Asda Money, for example, offers 1% on Asda shopping and 0.5% on everything else. Alternatively, you can pay a £3 a month fee, and get double the cashback. If you were to spend £150 in Asda and £400 elsewhere then even after the fee, you'd be better off (making £4 a month as opposed to £3.50).
The Santander 123 card also has a £3 a month fee. It pays 1% at the supermarket, 2% in department stores and 3% on petrol or train fares. There are limits on each type of spending, and an overall limit of £9 a month in cashback. However, if you were to spend £100 a month on petrol or £300 a month at the supermarket you'd make enough in cashback to cover the cost of the fee - and everything else is a bonus.
The AA Fuel Save card, meanwhile, is useful in its first year for those who drive reasonable distances and who would pay for AA membership anyway - because you get free breakdown cover for a year. This pays for the annual fee of £42. On top of that you get 0.5% cashback and 2% on fuel - which doubles to 4% when you spend £500 or more in a month. Cashback is capped at £150 a year.
2. Pay your debts in full and on time
If you pay interest on your debts, you will usually end up spending far more in interest than you earn in rewards. It may only take one slip up to wipe out the average cashback in a typical year, so if there's a good chance you will fall short, this kind of card may not be right for you.
Some of these cards offer 0% interest periods on spending and even on balance transfers, but you need to be very careful. If you use these cards to spread the cost of a purchase, or pay back debts, then you need to be absolutely certain you can do so before you have to start paying interest, or you will unwind any cashback benefits you have received.
3. Use your rewards
It sounds obvious, but Asda Money has discovered that 13.1 million credit card holders don't use the benefits and rewards they are currently earning. Three quarters of credit card holders earn rewards, but 47% of them don't make the most of it because they don't think the points are worth it. A fifth of those who earn rewards simply don't bother spending them.
When you consider the sums of money spent on these cards, this means there's a huge amount of money going to waste. Londoners spend the most on their cards - at an average of £16,294 a year. This is followed by Yorkshire and Humberside where people spend £8,763 and Wales where they spend £7,597. Assuming you get a rate of 0.5% on this spending, a typical Londoner could make more than £81 a year from their card.
