Reward cards can help out heavy spenders

Business Correspondent/Personal Finance Editor

Saturday 18 August 2012

If you pay off your credit card bill in full each month, it may be worth considering a switch to a cashback or reward card.

NICE LITTLE EARNER: Customers like Stephen Brooks get cashback every time they spend using reward cards, but there are drawbacks to the schemes. Picture: Jamie Simpson

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HELEN PRIDHAM and SIMON BAIN

Heavy spenders who put £2000 of purchases on their cards every month can gain up to £375 a year.

The number of people owning these cards has risen sharply over the past year, according to annual consumer research by American Express. It found the proportion of Brits with rewards cards has jumped by nearly one-third from 37% to 48%. This probably reflects their greater availability, as well as shoppers becoming cannier.

Several high street providers now offer cashback cards. Last year Santander introduced its 123 cashback credit card and Nationwide offers cashback on its Select Visa card, although it is only available to new or existing Flexaccount holders. Supermarkets have also got in on the act. Asda recently became the latest to offer a cashback card alongside Tesco and Sainsbury, which offer rewards cards.The drawback of rewards cards is that the interest rates they charge for credit are not usually the lowest and they may charge an annual fee. These costs can vastly outweigh any benefits gained, so if you have an outstanding credit card debt or cannot always repay your card in full each month you would be better off with a low interest rate card.Some cards may also encourage you to do all your shopping in one store, thereby stopping you from comparing costs elsewhere.Once you have such a card, however, it makes sense to put as much of your everyday spending on it as you can in order to maximise your rewards – providing you can afford to pay it off. The cards do influence people's spending. Almost half of rewards credit card holders (48%) are more likely to deliberately shop at particular stores and buy specific products to earn rewards, according to research. They also put almost 150% more spending on their plastic than those holding a non-rewards card.A more money-saving attitude is also developing. Julie Hay, head of credit cards at American Express, said: "Previously, rewards credit card holders were most likely to redeem their rewards for occasional treats (27% in 2011). While this remains popular with one-quarter of reward card holders, the research also shows rewards are being used to boost everyday spending power (29%) and help towards everyday living costs (20%)."Working out which reward card will provide the best deal can be difficult as it may depend on where and how you spend. The Santander card, for example, costs £24 a year and gives different levels of cashback on different types of spending – 1% on supermarket spending, 2% on department store spending and 3% on fuel spending up to £300 per month. Based on a £1000 per month spend, including the maximum spend on petrol, Moneysupermarket.com calculates an annual cashback of £216. The American Express Platinum Cashback credit card appears more competitive as it offers 5% cashback on up to £2000 worth of any purchases for the first three months, and up to 1.25% after that. On a monthly spend of £1000, this produces an annual cashback of £225, according to Moneysupermarket.com. However, there is a £25 annual fee and American Express is not as widely accepted as Visa or Mastercard. Another alternative is Capital One Aspire World Mastercard, which has a tiered cashback but no annual fee.Supermarket shoppers may find comparisons equally difficult because Asda offers cashback, while Sainsbury and Tesco offer points, with greater rewards given for instore grocery and fuel purchases than using your credit card to pay for purchases elsewhere. Kevin Mountford, head of banking at Moneysupermarket.com, advises: "Those looking to use a reward card should shop around first and consider the best card for their own circumstances. "If you are a regular shopper it makes sense to look at a card which gives you money off your next shop, or a frequent traveller may benefit more from a card with air mile points. "Many schemes are tied in to certain retailers and purchase types, and if you don't use them regularly in the right place your card will become redundant."It is worth considering a more direct way of getting cashback – buying online on cashback sites such as Quidco or Topcashback. If you click through to retailers using one of these sites and make a purchase, they will pass on to you the commission they get from the retailer. Meanwhile, there is plenty of activity in the "zero per cent" credit card market, with MBNA recently cutting the fee on its 20-month offer on balance transfers to 2.5%. There's also 0% on purchases for three months. Barclays Platinum has a 22-month free credit period on transfers with a 2.9% fee, or 21 months and a 2.6% fee. Just behind in the pack come Halifax, Bank of Scotland and Nationwide, offering periods of 18 to 20 months with fees around 3%, while Tesco charges a hefty 3.95% fee for its 18-month offer. All those cards revert to a 16.9% APR rate, with Nationwide on 15.9%.

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Reward cards can help out heavy spenders

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