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Although the days of cheap and easily available credit are long behind us and probably will never return, there are signs of life beginning to appear in the credit card market. Whereas large numbers of cards have been withdrawn over the last few years as banks scrambled to rebalance their accounts, some issuers are starting to look for new customers once more, and are starting to dangle more enticing offers and facilities to attract new business. Choosing which card to apply for depends on which features are most beneficial for your own personal circumstances, but one popular feature is that of cash back. What is it, and how does it work?
With a cash back credit card, a small proportion of everything you spend using the card is credited back to your account, either monthly or annually. The amounts involved are tiny, with 0.25% of your spending typical. This might not seem like a lot, but for heavy credit card users, the total amount can mount up surprisingly quickly. There are normally limitations on what kinds of spending are eligible for earning cash back, and in most cases only purchases of goods will be allowed – bill payments and the like are not counted.
Obviously, the idea of getting money back on your spending is an attractive one, but how should you use cash back cards to their best effect? The first thing to note is that any money you gain through the cash back system will be totally overshadowed and canceled out by the high interest rates that remain on most cards. This means that there is little or no point in carrying a balance on your card, so it isn’t ideal for large purchases. The idea or receiving a discount on an expensive item might seem to be the best way to use cash back, but in practice this isn’t the case.
The key to using these cards successfully is to use them in all the normal circumstances where you’d otherwise use cash – at the grocery store, in restaurants and so on – and make sure you clear your balance every time you receive a statement. In this way, your cash back earnings will be delivered to you in full, and not canceled out by interest charges. You really will be earning money just by carrying on the spending you’d be doing anyway, and the satisfaction of benefiting at a bank’s expense is an added bonus!