It's the perfect time to get a cashback credit card and get 5% back on all Christmas and New Year sales savings, says our Money Saving Expert Martin Lewis.
What are cashback cards and how do I use them?
Put simply, cashback credit cards PAY YOU to spend on them. Done right, many can earn £100s a year. The reason they do this, of course, is because they hope to earn lots of money back from you in interest.
Yet provided you neuter the cards’ interest-charging ability – which you do by setting up a direct debit to repay the card off IN FULL each month – that way, all the money is profit. If you can't do that, you shouldn't be getting one of these cards.
What are the top cards?
- Earn 5% cashback for three months: New Capital One Aspire World cardholders get 5% cashback for the first 99 days – which right now covers the high-spend Christmas and January sales period. To be in with a chance of getting it you need to own a home, have a decent credit score and earnings of £20k+. If you fail to repay in full, it’s 19.9% representative APR.
- Santander 123: Pays 3% on up to £300/month petrol, diesel, rail and tube spending; 2% on department stores and 1% on supermarkets. Yet a £24 annual fee means it only wins for heavy drivers/commuters. Another big plus is that, unusually, this card pays cashback monthly. Charges 18.9% rep APR (22.8% rep APR including the fee) if you fail to repay in full.
- Aqua Reward: Most cashback cards require a top credit score. Yet Aqua Reward offers 3% cashback, max £100/year. As it's primarily a card to rebuild your credit, even some with past CCJs/defaults can get it. Yet ONLY get it if you can always afford to repay IN FULL each month, or it’s a hideous 34.9% rep APR.
What's the best way to use a cashback card?
- Use it for all spending. Provided you can always clear in full, use it for ALL normal spending (and work expenses if you get them) instead of using debit cards, other cards, cash or cheques. Though don't see it as an excuse for spending more.
- In a trusting relationship? You can up the gain you get when using cashback cards. For example Janet applies making John second cardholder so both get the intro 5% cashback. John applies, doing the same, to bag another three months 5%. After that, just use one person's card for the reduced cashback rate.
- Free consumer protection on top. By law, buy anything from £100 to £30,000 and pay, even in part, on any credit card (not debit) and Section 75 laws mean the card firm's jointly liable with the retailer for the whole amount. If an item's faulty, or the retailer goes bust, go to the card provider for refunds.
- Credit score impact. If you’re worried about the impact on your credit score, it's applications, not acceptance, that matter. One application has no real impact on your score, the problem is when you make lots in a short period, so avoid doing this.