How do Cashback Credit Cards Work?
Posted February 25th, 2009 Cashback credit cards have become some of the most popular credit cards in the world today and the plain simple truth of the matter is that in this particular respect, the UK is no different. There are cashback credit cards dominating their particular fields in terms of statistics in the UK and that is definitely something that people enjoy extensively because it allows them the chance to talk to their friends about exactly what they can get out of their cashback credit cards. There has been more consumer enthusiasm about cashback cards than any other credit card type when it debuted on the market, practically leveling in popularly with frequent flyer credit cards.
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Cashback Credit Card Basics
Most credit cards with cashback offers feature them as reedemable rewards in their rewards program catalogue. For instance, you may be able to redeem:
- 10,000 points for £50
- 15,000 points for £75
This hypothetical rewards program is using 200:1 ratio of points:dollars. This is a fairly common cash-back ratio in the UK. If you plan to use your credit card to ‘profit from cash-back’, you’ll need to spend approximately £12,500 a year simply to compensate for the annual fee. For gold and platinum credit cards, you’ll need to spend about £30,000 (assuming the average prestige credit card annual fee sits around £150).
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Details: Rebate Rate
If cashback credit cards were as simple as the above paragraph implies, there would be no need for competing cards. However, there are many details that come into it that make different cards good for different people and that is why more discussion is needed before you find the card that is best for you. The first of these details has to do with the rebate rate and it is perhaps the most impressive aspect of the card and the one that deserves the most discussion.
Simply put, the rebate rate is the rate at which you get money back when you make purchases on the credit card. When cashback credit cards first came out onto the market, most of the rebate rates were simple. That is to say that they were a straight percentage of everything you spent on the card in a year’s time and the rebate cheque was cut to you at the end of the year. Therefore, a credit card that had a cashback rebate rate of 1% would pay you 1% of what you spent on a yearly basis, no questions asked. If you spent £20,000 over the course of a year on your credit card, you would receive a rebate cheque for £200 at the end of the year.
As more cashback credit cards came onto the market however, companies realized that in the very long term they didn’t like their profit margin with this type of rebate rate. To that end, the rebate rate was amended with a maximum and therefore companies did not have to pay people beyond a certain point. This type of maximum is still in use today and in the case of most companies that employ it the maximum is £500 in the rebate, meaning that you don’t get credit for every purchase above £50,000 that you make on that particular credit card.
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Graduated Rebate
Finally, the most recent addition to the rebate rate debate has been the graduate rebate rate system. A typical graduated rebate rate might look something like this:
- £0 – £10,000: 0.25%
- £10,000 – £25,000: 0.5%
- £25,000 – £50,000: 0.75%
- £50,000+: 1%
The numerical ranges represent purchase amounts on your credit card while the percentages represent the rebate rate that you would get in that particular level. This is the most advantageous way of doing things for the credit card company and for that reason many people try to avoid these cashback card types if at all possible. It is not always possible however, so keep in mind that if you are 100% set on cashback credit card you might end up stuck with that type of deal.
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Comparison of Top 10 Credit Card Offers
| Credit Card | Card Details | Interest Rate | Cash Advance Rate | Balance Transfer Rate | Annual fee | Interest free days | ||
|---|---|---|---|---|---|---|---|---|
 Halifax All in One Credit Card |
The Halifax All in One credit card offers a great introductory rate, and is perfect for saving you money now as well as in the future. | 15.9% APR | 27.95% p.a. (variable) | 0% for 9 months | No Annual Fee | 59 Days interest free |
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 Virgin Credit Card |
As well as a great rate, the Virgin Credit Card comes with:
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16.6% APR (variable) | 27.9% p.a. (variable) | 0% for 16 Months (2.98% fee on balance transfers) | No Annual Fee | 50 days on card purchases |
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 Capital One Classic Visa |
This card is designed for people with bad credit ratings, this is why the rate is quite high. |
Typical 34.9% APR variable | 34.9% APR | 34.9% APR | No Annual Fee | 56 days for purchases. 0 days for balance transfers and cash. |
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As well as earning Flying Club miles which you can spend on brilliant rewards like flights, upgrades, car hire and more, a Virgin Atlantic Credit Card gives you up to 46 days interest free on card purchases. |
17.9% APR typical rate | 20.9% p.a. (variable) | 0% for 6 months (2% handling fee) | No Annual Fee | Up to 46 days on card purchases only. |
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The Virgin Prepaid MasterCard from Virgin Money is a prepaid Mastercard that you can add funds to, and use these funds for normal purchases. |
N/A | N/A | N/A | N/A | N/A |
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5% cashback on purchases in your first three months (up to £4,000 of spend). Thereafter, earn 0.5% on the first £3,500, 1% on £3,501 to £10,000, and 1.5% after £10,001. |
18.9% p.a. | 27.9% p.a. | 18.9% p.a | No Annual Fee | 56 days for purchases. 0 days for balance transfers and cash. |
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Vanquis Visa Card is designed for people with no credit history or who have previously had bad debt. Representative 39.9% APR (variable) |
Representative 39.9% APR (variable) | 39.9% | N/A | No Annual Fee | Up to 56 days on card purchases only |
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The award winning prepaid card with no credit check or bank account needed. | Funds in your Account will not earn interest | Prepaid only - N/A | Prepaid only - N/A | £59.40 p.a. (£4.95/month) | Prepaid only - N/A |
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