Cashback rates on credit cards are being slashed. Could we be seeing the beginning of the end for cashback credit cards? Here’s what’s been happening and the alternative ways to make money as you spend.
I’ve been raving on about cashback credit cards since I started the blog in 2014. I use them for as much as I can, earning a little bit of money back on as much spending as possible.
My wallet is half full with cashback cards, which I use at different times. My Santander 123 saves me 3% on petrol and travel and 2% at department stores, my Amex currently gives me 1.25% on every purchase, while my TSB gives 1% for times Amex isn’t accepted.
They’re a big reason why I started using less and less cash. I also love how you can double up the discount, using cashback sites or voucher codes to save even more.
Of course for that to work you need to be disciplined. I pay off the full amount on each card every month, meaning I don’t get charged interest on the balance, which would make the cashback completely pointless.
But this way of paying could be on the way out.
Less cashback or pay a fee
Last week Santander announced a range of new credit cards, but hidden at the bottom of the press release was the closure of the Santander 123 cashback credit card. A few months back American Express reduced the cashback rates on their Platinum range, making them less lucrative.
These aren’t the first changes either. Last year Capital One scrapped it’s cashback credit cards, while Tesco and M&S reduced the rewards customers get when spending in-store on one of their cards.
The main reason for these cuts is an EU rule which caps the fees credit card companies can charge retailers per transaction, meaning there’s less room in the profits for cashback.
If carries on, it’s likely you’ll either have to pay a fee for higher rates or settle for lower cashback levels. This is pretty much already the case with most cashback cards.
If you’ve already got the Santander 123 credit card you’ll be able to keep earning cashback on the existing rates (for now), and some Amex Platinum card owners will still get their bonus month next year. But for anyone looking to apply for a new card, you won’t get the same deals.
Here are the main cashback cards currently available:
Credit cards paying 1% cashback
- TSB Platinum – Capped at £500 spending a month; 5% bonus if used via Apple Pay until 31st December 2016 capped at £5 a month; need to have a TSB current account
- American Express Platinum – £25 annual fee; 5% intro rate on first £3,000; rises to 1.25% after spending £10,000
- Asda Cashback Plus – £3 monthly fee; 2% cashback at Asda
Credit cards paying 0.5% cashback
- Santander’s All In One – £36 annual fee; also fee-free spending overseas
- Amex Everyday Platinum Everyday Cashback – 5% intro rate on first £3,000l £1% cashback after spending £5,000
- Asda Cashback – 1% cashback at Asda
- Aqua Rewards; also fee-free spending overseas
- Nationwide Select – Need to have a Nationwide current account; also fee-free spending overseas
- AA Fuel Save card – 2% on petrol; rises to 4% if you spend more than £500 on petrol
Current account paying 5% cashback
- TSB Classic Plus – only on contactless payments; max of £100 spend per month
An alternative way to earn on your spending
I think it’ll be a real shame for consumers if this way of earning disappears. But there is an alternative way to earn money on your spending.
By spending only on a 0% purchase credit card and keeping the cash in savings instead, you can earn interest at a far higher rate than the cashback rates offered above.
The highest interest rates are in current accounts. Nationwide’s FlexDirect current account offers 5% interest on balances of £2,500, while Santander’s 123 account pays 1.5% on balances up to £20,000 (though there is a £36 annual fee). You can get 5% also on Regular Savings accounts with First Direct, Nationwide and M&S, though you’re limited to around £250/£300 a month.
So £1,000 sitting in a 5% current account will earn £50 in a year, rather than just £5 on a 0.5% cashback credit card.
You do need to be disciplined to make this work. You still need to make the minimum monthly repayments to avoid penalities, and you need to pay off the balance in full before the 0% period ends. But if you’re confident you can do both, you’ll be much better off than most of the current cashback credit cards.
This trick is normally called “slow stoozing” (as opposed to “fast stoozing” where you use 0% balance transfers backed by having the balance in a savings account).
But TSB are cutting their rate to 3% from January. And the Nationwide 5% drops to 1% after the first year. And the caps on amounts mean many people savy enough to do this sort of thing have already maxed out the amount they can get paid good interest on.