Rewards schemes versus cashback websites

MoneyAs online shopping has grown in popularity, so have the number of ways you can earn something back on the things you buy.

Cashback websites have now become a part of many people's everyday shopping experience, while reward schemes such as Nectar and Avios (formerly AirMiles), which have been around a lot longer, have welcomed more and more retailers on board.
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How cashback websites and reward schemes work
The largest cashback websites, such as Quidco and TopCashback, now claim to pay out hundreds of millions of pounds a year.

The idea is very simple: you sign up with a cashback site, search for offers from retailers, then click through and purchase from an eligible retailer and earn cashback. It's worth noting that Quidco charges a £5 annual membership fee, while TopCashback is free, although as you'll see the amount of cashback each offers can vary.

Reward schemes, as their name suggests, reward you with points every time you make a purchase at partner retailers. You can either do this in-store via a reward card (in the case of Nectar at certain retailers, such as Sainsbury's) or by purchasing via the reward scheme's website.

Some retailers are only part of reward schemes; for example Amazon is part of Nectar but not currently on any cashback sites. Meanwhile, Boots appears on cashback sites but is not part of a reward scheme (I'm not counting its own Advantage Card).

However, many appear in both reward schemes and on cashback sites. So that presents a dilemma. Do you go via a reward scheme such as Nectar or Avios and earn points to redeem later? Or do you plump for cold, hard cash? You can't do both.

How they compare
Obviously if you prefer cash it's a no-brainer, but what if you're contemplating using your rewards to pay for travel or other treats? Let's take a look at how reward schemes stack up against cashback websites for some of the most popular retailers.


Reward scheme

Cashback

Argos

Two Avios for every £1 spent/Two Nectar points per £1 spent

1.5% (Quidco/TopCashback)

B&Q

Two Avios for every £1 spent

3.5% (reserve & collect)-4% (home delivery) (Quidco/TopCashback)

BHS

Four Avios for every £1 spent

5% (Quidco/TopCashback)

Blacks

Four Avios for every £1 spent/Two Nectar points per £1 spent

6% (Quidco/TopCashback)

The Body Shop

Two Nectar points for every £1 spent

14%-18% (TopCashback)/16% (Quidco)

Currys

Two Avios for every £1 spent/ Two Nectar points for every £1 spent

1.5% (Quidco/TopCashback)

Domino's

Two Nectar points for every £1 spent

2% (Quidco/TopCashback)

Dorothy Perkins

Four Avios for every £1 spent

5% (Quidco/TopCashback)

eBay

One Nectar point for every £1 spent

30% in selected categories only (Quidco/TopCashback)

French Connection

Four Avios for every £1 spent/ Two Nectar points for every £1 spent

7% (Quidco)/5% (TopCashback)

Gap

Eight Avios for every £1 spent/Two Nectar points for every £1 spent

7% (Quidco/TopCashback)

Halfords

Two Nectar points for every £1 spent

3% (Quidco/TopCashback)

Homebase

Two Nectar points for every £1 spent (online and in-store)

4% (TopCashback)/3% (Quidco)

Laura Ashley

Four Avios for every £1 spent

6% (Quidco/TopCashback)

M&S

Two Avios for every £1 spent

5%-9% (Quidco)/3% (TopCashback)

New Look

Four Avios for every £1 spent

7% (Quidco and TopCashback, new customers only)

Next

One Nectar point for every £1 spent

2% (Quidco)/1% (TopCashback)

PC World

Two Avios for every £1 spent

1.5% (Quidco)/1.5%-5% (TopCashback)

Superdrug

Four Avios for every £1 spent

6.5% (Quidco/TopCashback)

Tesco Entertainment

One Clubcard point for every £1 spent

8% (Quidco, excludes books, consoles and accessories)/3% (TopCashback)

Ticketmaster

One Nectar point for every £1 spent

3% for West End theatre tickets/1.5% for all others (Quidco/ TopCashback)

Wallis

Four Avios for every £1 spent/Two Nectar points for every £1 spent

2.5%-3% (Quidco)/3% (TopCashback)

Waterstones

Two Avios for every £1 spent

4% (Quidco/TopCashback)


What your rewards are worth
Now let's take a look at how much cash your reward points are worth. For this example, and it is only an example, I've presumed that you earn an average of two Avios or Nectar points for every £1 you spend.

Based on that, here's what the points are worth when they're spent on various rewards.

Reward

Cash price

Reward scheme cost

Value of each reward point

Diggerland family of four ticket

£64

12,500 Avios

0.01p

Madame Tussauds ticket

£22.50

3,000 Avios

0.015p

Eurostar adult return from London to Paris

£69

9,000 Avios

0.015p

Afternoon tea for two at Park Lane Hotel, London

£66

9,500 Avios

0.014p

BA adult return flight from London to Malaga

£150

15,000 Avios + £30 taxes

0.016p

Merlin annual pass

£99

9,900 Nectar points*

0.02p

easyJet return flight from London to Malaga, including one piece of hold luggage

£100

20,000 Nectar points

0.01p


*Your Nectar points are worth double on this reward (ie 500 points=£5 off)

I should say again that this is quite a rough and ready analysis, as Avios doesn't reveal how much its points are worth. So I've used figures I've obtained from the reward providers' sites to work out the value. Nectar is more straightforward, as 250 points are worth a £2.50 discount in most cases (I've indicated the one example above where this isn't the case).

Based on my research, if you spend £100 at Argos with the intention of collecting points to redeem against a Eurostar return journey, you'll receive Avios to the value of £1.50. Alternatively, take the 1.5% cashback from Quidco or topcashback and you'll be paid £1.50 in cash.

But spend £100 at Argos and collect the Nectar points to redeem against an easyJet flight to Malaga and your points will only be worth £1, versus the £1.50 you could have earned via a cashback website.

My analysis indicates that, if it's just a simple case of reward points versus cashback, you're better off in most cases taking the cashback. And that also means you can shop around for flights or treats and potentially pay less for them than you would by spending the equivalent rewards points, for example by flying with a budget airline rather than a full-price one.

Earn more with a credit card
However, if you pay for your shopping using a reward credit card, such as the Sainsbury's Bank Nectar credit card or the British Airways American Express card (which offers Avios), you can quickly double or treble your points. And that quickly increases your ability to earn rewards such as flights or days out, particularly if you get a hefty welcome bonus of thousands of points.

The same applies to cash, if that's the route you prefer to take, if you pay using a cashback credit card such as the American Express Platinum Cashback Everyday card or the Capital One Aspire World card.

The key, of course, with these credit cards is to make sure you can pay off your balance in full each month. Otherwise your rewards or cashback will be eaten up by interest charges.

Don't forget loyalty schemes and voucher codes
If you have a Boots Advantage card or a Waterstones card, you can also earn loyalty points on your purchases in addition to any cashback. So if you're a regular shopper at a particular shop, see if they have a loyalty scheme.

And you may be able to save a bit with a voucher code for your purchase. The cashback sites often carry these now, but it's also worth checking the likes of Vouchercodes.co.uk and MyVoucherCodes to see if there are any others you can use at the checkout.

Whichever way you prefer to be rewarded, it's well worth checking every time you shop online to see if you can earn some rewards or cash.

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Rewards schemes versus cashback websites

Using a mobile phone to make and receive calls, send texts and browse the web while abroad can be extremely costly – especially if you are travelling outside the European Union (EU), where calls can cost up to 10 times as much as at home.

To avoid high charges, Carphone Warehouse suggests tourists ensure a data cap is in place, use applications to check data usage, turn off 'data roaming', avoid data-intensive applications such as Google Maps and YouTube and use wi-fi spots to update social networking sites.

Payment Protection Insurance (PPI) is supposed to help people to continue meeting their loan, mortgage or credit card repayments if they fall ill or lose their jobs. However, policies are often over-priced, riddled with exclusions and sold to people who could not make a claim if they needed to.

At one point, sale of this cover - which was often included automatically in loan repayments - was estimated to boost the banks' profits by up to £5 billion a year.
Now, though, consumers who were mis-sold PPI can fight back by complaining to the bank or lender concerned and taking their case to the Financial Ombudsman Service (08000 234567) should the response prove unsatisfactory.

It could be you, but let's face it, it probably won't be. In fact, buying a ticket for the Lotto only gives you a 1 in 13.9 million chance of winning the jackpot.

With odds like that, you would almost certainly be better off hanging on to your cash and saving it in a high-interest account.

No-frills airlines such as EasyJet may promote rock-bottom prices on their websites. But the overall fare you pay can be surprisingly high once extras such as luggage and credit card payment fees have been added - a process known as drip pricing.

Taking one piece of hold baggage on a return EasyJet flight, for example, adds close to £20 to the cost of your flight, while paying by credit card increases the price by a further £10.
It may therefore be worth comparing the total cost with that of a flight with a standard airline such as British Airways.

Cash advances, which include cash withdrawals, are generally charged at a much higher rate of interest than standard purchases.

While the average credit card interest rate is around 17%, a typical cash withdrawal of £500, for example, is charged at more than 26%.
What's more, as the interest accrues from the date of the transaction, rather than the next payment date, costs will mount up even if you clear your balance in full with your next payment.

Supermarkets such as Tesco and Asda often run promotions under which you can, for example, get three products for the price of two.

However, it is only worth taking advantage of these deals if you will actually use the products. Otherwise, you are simply buying for the sake of it, which is a waste of your hard-earned cash.
To avoid paying over the odds, it is also worth checking the price per kilo to ensure that larger 'economy' packs really are cheaper than the smaller versions.

Buy a train ticket at the station on the day of travel and the price is likely to give you a shock - especially if you are travelling a long distance at a busy time of day.

However, you can cut the cost of train travel by 50% or more by going online and making the purchase beforehand - especially if you book 12 weeks in advance, which is when the cheapest tickets are on sale.
Other ways to reduce the price you pay include avoiding peak times and taking advantage of so-called carnet tickets, which allow you to buy, for example, 12 journeys for the price of 10.

Most High Street banks offer packaged accounts that come with monthly fees ranging from £6.50 up to as much as £40, with a typical account charging about £15 per month.

Various benefits, such as travel insurance and mobile phone insurance, are offered in return for this fee. But whether or not it is worth paying for them depends on your individual circumstances.
Before signing up, it is therefore essential to check that you will make use of enough of the benefits, and that you cannot get them for less elsewhere.

Overseas money transfers or travel money purchases attract the same high rate of interest as credit card cash withdrawals.

Worse still, most credit cards – and debit cards – also charge you a foreign loading fee if you use them to make purchases while abroad.
You can, however, avoid these charges by using a Saga Platinum or Nationwide Building Society credit card.

Numbers starting 0871 cost 10p or more from a landline, while those starting 09 can cost more than £1 a minute from a mobile phone.

And the operators of these high-cost phone lines, some of which are banks, often get a cut of the call charges.
Most 09 numbers are linked to scams and should therefore be avoided at all costs, while 0871 numbers can often be bypassed by searching for an alternative local rate numbers on the saynoto0870.com.
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