CashBack credit cards are a type of loyalty scheme whereby you are rewarded every time you use your credit card for purchases. Most credit cards of this type pay 1% of the purchase price of anything you buy so if you spend £400 on the card per month, you are rewarded for £4 of cashback. This may not sound like much but over the course of a year you would earn £48 for doing nothing but using your credit card.

The cashback you earn is normally paid to you once a year as a lump sum and if you use your credit card for all purchases within the month then this annual bonus can mount up to several hundred pounds. To use this type of card successfully though you have to pay the balance off in full each month, before interest charges start. If you don’t then the interest charges can easily outweigh any cashback you earn throughout the month.

CashBack Credit Cards with 0% Interest
A lot of CashBack credit cards are initially issued with a ‘0% interest on purchases’ period attached. This means that if you play the game correctly you can earn cashback from your purchases and interest on the money you save by using the credit card instead of cash.

So for example, if the interest free period is 12 months then you should use the credit card for all of your purchases within that year. This means that if you spend £800 on your card per month you will receive £8 cashback and this amounts to nearly £100 free money within the twelve months. The money that you would normally be using to pay for these purchases can then be put into a high interest savings account so that in this example you would be saving £800 per month. Then at the end of the interest free period on the cashback credit card you can use the savings to pay the balance and you get the interest that it has earned. This means that you win twice – you get free cashback and interest on the savings for the year.

The Drawbacks
Surprisingly there aren’t many drawbacks to cashback credit cards because at the end of the day they are giving you money for free. They may have a higher interest rate than other credit cards but whether you choose to pay the balance at the end of each month or take advantage of the interest free period, you won’t be paying any interest anyway. You do have to have discipline though and your payments have to be made on time, especially the main payment at the end of the 0% interest period. If you’re late with it the interest charges will almost definitely be higher than the interest you earned from the savings and you will end up with a debt that you hadn’t planned on having.