Quick – beat the demise of credit card perks
On 9 December, a new EU rule comes into force to cap the amount of money credit card companies manage to cream off when people pay with plastic at the tills.
Retailers are charged a fee in return for being able to accept providers’ cards, known as the ‘interchange rate’, which averages about 0.7% at the moment. By the end of the year, these fees will be capped at 0.3% for credit card transactions and 0.2% for debit cards.
This means a big hit to profits, and while this sounds like good news, with the government wanting to see the estimated business savings of £480 million a year being passed onto consumers, it is in fact expected that credit card providers will respond by pulling their most lucrative reward schemes.
Although such schemes attract new business, they are expensive, with customers who choose cashback deals also being the sort to pay their bill in full on time.
Tesco has already announced that from November, just before the Christmas rush, it is cutting in half the number of Clubcard points available through its credit card when you shop outside its own stores, which currently pays 1p for every £4 spent.
Capital One, one of the UK’s biggest card providers, scrapped its cashback deal – where customers earned 1p per £2 spent using the card – in June, and RBS and NatWest closed their YourPoints card scheme in July.
Meanwhile, Santander has announced that fees for its popular 123 credit card, which offers up to 3% cashback, will rise in January from £24 a year to £3 a month, which works out as £36 annually.
“We are seeing an alarming trend,” says Nicolas Frankcom, money expert at uSwitch.com. “It seems that the EU cap on fees, which was initially heralded as a win for consumers, is a double-edged sword. Our own research shows nearly six million pay for their weekly shop thanks to racked-up rewards.
“The good news is there are still plenty of great deals out there, for now. But anyone thinking about getting a reward card in their wallet should get their hands on one soon and keep an eye on the market, as some of the biggest providers are changing their offers.”
Best cashback credit cards to get now
Barclaycard has one of the most generous rewards schemes, with its Freedom Rewards Visa card that comes with 0% interest on purchases for a six-month introductory period and 21.9% thereafter.
Rachel Springall, Moneyfacts.co.uk’s finance expert, says it’s good for frequent spenders who want a wider variety of benefits to choose from. You earn one point per £1 spend, two points per £1 spent in supermarkets and petrol stations, and three points per £1 at selected ‘Freedom partners’, which include Starbucks, House of Fraser, iTunes, Argos and Transport for London. You can redeem your points at about 70 reward partners and get 3,500 bonus points with your first purchase through the Freedom Rewards Store. A £5 Freedom Rewards Voucher equates to 1,750 Freedom points.
For frequent flyers, the British Airways American Express Card offers one Avios for every £1 spent, with 9,000 bonus Avios when £1,000 is spent on the card in the first three months. If you spend £20,000 on the card in 12 months, and redeem the Avios on a BA flight, you will receive another free ticket for a companion on the same flight and in the same cabin. You need 4,000 Avios for a flight to Paris, paying taxes on top.
The best store loyalty credit cards include the Debenhams MasterCard, which offers three points for each £1 spent in Debenhams, and one point for every £2 spend elsewhere. You get a £5 voucher for every 500 points.
The John Lewis and Waitrose partnership MasterCard offers one point for every £1 spent in store or online at John Lewis, Waitrose and John Lewis Insurance, and one point for every £2 spent elsewhere. As with Debenhams, 500 points equals £5.
If you prefer to earn cash, the American Express Platinum cash back credit card has the most generous offering, with an introductory 5% for three months on spends of up to £2,500 a year and a standard 1.25% return thereafter. Beware: this card comes with a £25 yearly fee.
American Express’s Platinum Everyday Card has no fee but a slightly less generous offering of 5% for three months on spends up to £2,000 with a maximum of £100, and standard cash back of 0.5% on spends up to £3,500, 1% on spends between £3,501 and £7,500 and 1.25% on spends of more than £7,501.
American Express is unlikely to pull its deals, either, as it is unaffected by the interchange fee, negotiating its own charges with retailers instead. The downside is that this is often more expensive for retailers who often decide not to accept Amex at all.
Switch to a cashback current account
It may be more lucrative to earn rewards through your bank.
“Current accounts are providing customers with a wealth of different reward options, some in the form of a monthly credit, some offering a percentage of cash back for spending and others that reward consumers upfront who switch to them,” says Springall.
“Savers can now choose a current account as a haven for their cash, because the interest they gain is so much higher than that of standard savings accounts, albeit the balances they can earn on will be smaller in most cases.
“Some current accounts even offer exclusive savings accounts that offer better returns than other deals on the market, such as first direct, HSBC and M&S Bank which offer a regular saver paying 6%.”
According to research by uSwitch.com, 12% of Brits are shunning savings accounts altogether to use their current account as a ‘one-pot wonder’ for all their finances. A fifth say they have specifically chosen to save in the main current account in order to boost their interest rates and a further third would consider doing so.
“With savings rates at a record low, savvy consumers are increasingly turning to current accounts to make their money work harder,” says Frankcom.
“On top of high interest rates for savings, providers are offering switching incentives of up to £150 for those looking to make a quick buck. But you need to look closely at the accounts on offer and check the terms and conditions. The high rates of interest are only for limited balances and in order to avoid fees or benefit from the generous rates, customers often have to pay in a certain amount each month. It’s important that people weigh up all the options – including factors such as customer service and branch or online access – before signing on the dotted line.”
TSB has upgraded its Classic Plus current account to offer 5% cashback on the first £100 a month of contactless payments that account holders make, as well as paying 5% interest on balances of up to £2,000. Customers are also eligible to open a Monthly Saver account, which pays interest of 5%, fixed for a year, on deposits of £25 to £250 a month.
It challenges Santander for most generous rewards current account, particularly since the unwelcome announcement in early September that the Spanish bank is to more than double the fee account holders have to pay, from £24 to £60 a year (or from £2 to £5 a month), to receive up to 3% interest and 3% cashback on bills.
The new TSB account does not charge a fee, though customers must deposit £500 a month into the account. Halifax’s Reward Current Account is also worth considering. It pays £5 a month credit interest, provided you fund the account with £750 a month and have two direct debit mandates set up.
Nationwide’s FlexDirect account pays 5% on balances of up to £2,500 with £1,000 a month saved into the account each month.
If it is a cash bonus that you are after, then consider moving your current account to Clydesdale or Yorkshire Bank, which both pay £150 up front to new customers. First Direct and Halifax offer a £125 switching incentive, while Smile and The Co-operative pay £100 plus a £25 charitable donation.
Double up with cashback websites
To really make the most of cashback deals, you should double up, using your rewards credit or debit card to shop through a cashback website. Quidco, for example, has more than 4,300 retailers on its site including online behemoths Amazon and Asos. Click through to make a purchase on these sites and you will receive cash back of as much as 10%.
You can also use Quidco card link, which allows customers to register their credit or debit cards on the site and earn cash back to your Quidco account in participating stores every time you use your chosen payment method. For example, current high street deals include from between 3% and 10% cashback in Mothercare, Gap, Debenhams and Halfords.
Issued by a bank as part of a current account and, in a nutshell, serves as electronic cash. Unlike a credit or charge card, where you get an interest-free period before you have to settle the bill, the funds spent on a debit card are withdrawn immediately from your current account. Unless you’ve arranged an overdraft, if you don’t have the cash in the account, you can’t spend it.
An account opened with a clearing bank (few building societies offer current accounts) that provides the ability to draw cash (usually via a debit card) or cheques from the account. Some pay fairly minimal rates of interest if the account is in credit. Most current accounts insist your monthly income (salary or pension) is paid directly in each month and they offer a number of optional services – such as overdrafts and charge cards – which are negotiable but will incur fees.
Rather than shopping online directly with a retailer, if you go to the retailer via a cashback website (you have to register as a member), when you make a purchase the cashback site gets a commission and rebates some – or all – of this back to you. The cash being paid back to you will vary wildly from site to site and even from product to product, so check you’re getting the best deal before you buy.
Cashback credit cards
These reward you with a small percentage of cash back on your total spend on the card, either each month or annually. Cashback cards carry high APRs and ONLY work if you pay your balance off in full every month. If you miss payments and have existing credit card debts, leave these well alone.
Used by the holder to buy goods and services, credit cards also have a monthly or annual spending limit, which may be raised or lowered depending on the creditworthiness of the cardholder. But unlike charge cards, borrowers aren’t forced to pay the balance off in full every month and, as long as they make a stated minimum payment, can carry a balance from one month to the next, generating compound interest. As the issuing company is effectively giving you a short-term loan, most credit cards have variable and relatively high interest rates. Allowing the interest to compound for too long may result in dire financial straits.