Reward credit cards offer you rewards for spending on your credit card. The actual rewards differ from card to card, but generally reward credit cards are a great way of getting something-for-nothing, even from your normal everyday spending.
Have you been to a supermarket, department store, airport, or football match, and been offered a credit card? If the answer’s yes, you’ll know that there’s a wide array of reward credit cards available. While the rewards card market can seem vast, though, most cards fit nicely into one of two reward card categories – either cashback or points-based rewards.
If you want to get rewarded for your credit card spend, but you don’t have the time or patience to research different reward schemes, or you don’t like the idea of being tied down to particular merchants, then a cashback card might be right for you.
Cashback cards offer you money back on your credit card spend – which you can then use in any way you want. The rate at which you can earn cashback varies from card to card, so to get the most from one of these products you’ll need to consider how you’re going to use it.
Are you likely to be making some big purchases imminently? Do you spend a steady amount every month with particular retailers? Would you benefit from increased cashback on specific categories of purchases, such as fuel? The answers to these questions will help steer your card selections as all cashback cards operate in a slightly different manner.
Some cards offer higher levels of cashback in the first few months after you open your account. This can be a great way to maximise your cashback on big-ticket items. However, introductory cashback is typically capped at a set amount, because the cashback available is considerably more than the issuer will make from the transactions. The rates of cashback also tend to dip quite substantially after the introductory period, so these products are not always the best option for people who spend a steady amount every month.
Some retailers offer credit cards which incentivise spending in their stores while offering lower cashback rates elsewhere. These cards can be a good option if you do the bulk of your shopping with the retailer offering the card. The eligibility criteria for these cards also tend to be more relaxed than other cashback products, meaning you could obtain one even if you don’t have an excellent credit score. However, if you shop in a range of stores, or don’t want to feel tied to a particular retailer, these cards might not be right for you.
If being tied to a particular store is not appealing, but you recognise that the majority of your purchases are with supermarkets or petrol stations, then a category specific card could be a good option for you. You’ll receive reduced (or no) cashback when you buy things on your card that are not in the specific category, so you need to be pretty sure where you’re likely to shop before applying.
Points-based reward cards are an increasingly popular choice for people wanting a reward card, and for good reason. These products once relied on customers picking through paper catalogues of rewards, which was a pretty painful experience. Today, though, most points-based rewards cards are associated with the biggest and most popular UK reward programs, so there’s far less ambiguity on what your points are worth.
Another reason for the increased popularity of reward credit cards is that many are no longer exclusively reward products. In fact, the most popular reward cards now tend to be cross-over products, offering competitive rates on balance transfers, purchases, or other popular features.
Just as there are different types of cashback cards, so there are different types of points-based rewards cards:
Credit cards have a well-earned association with travel, since most can be used in millions of places internationally – and indeed, many reward credit cards are linked to frequent flyer programs. It used to be quite difficult to pick airmile scheme, but airline and frequent flyer program consolidation has made it a lot easier. It’s now quite easy to find an airmile credit card that will earn you free flights to a range of desirable destinations.
Green Shield pioneered supermarket loyalty programs in the 1950s, before the advent of the credit card, and they have been popular ever since. Tesco took these programs to new heights of sophistication with the launch of the Clubcard, but although these programs gave retailers greater insight into our retail habits, the data-gathering stopped at the doors of their stores.
Supermarket credit cards provide retailers with an unrivalled method for understanding your wider shopping habits. Their established reward programs also offer a familiar and trusted method for you to redeem your rewards: by using your credit card you simply earn more in-store points, which can be redeemed for tangible benefits.
Similar to airline credit cards, hotel reward credit cards let you earn points wherever your shop, which can then be exchanged for hotel nights or room upgrades, and other travel-related benefits.
Although most card issuers no longer develop bespoke reward programs, some do, and they can be very rewarding. Before applying for one of these products you’ll need to do your research and be sure that the rewards available are of interest to you, but, if they are, you’ll probably find that these cards are a very competitive. They can be used everywhere, so you don’t need to stomach high prices in a particular store to earn good levels of rewards. This means you can get the best of both worlds: shopping around for the best price, and getting fully rewarded for doing so.
Reward cards can be a great way of optimising your spend and getting back value you would otherwise leave at the checkout. They’re not suitable for everyone, though.
If you regularly fail to pay your full monthly credit card balance, rewards should not be your priority, as the interest you’ll pay on your balance will likely exceed the cash value of your rewards. That said, as mentioned above, some reward cards now offer benefits alongside rewards, so perhaps a 0% purchase reward card would offer the perfect combination – so long as your card balance is cleared before your introductory period expires.
Equally, if you have a balance which is currently accruing a large amount of interest, then a 0% balance transfer card is likely to offer you more value than a reward card. However, since most leading balance transfer cards offer a very limited 0% purchase period, you’ll start accruing interest on recent transactions again fairly soon. A better option in this circumstance is a 0% balance transfer and purchase card (with rewards). These cards don’t offer the table-topping durations that marketing-leading balance transfers do, but they do offer reasonably long 0% periods on both transfers and purchases. This should help you avoid being stung by a high interest rate in the near future and will continue to earn rewards as you spend.
The market-leading reward cards do require a good credit rating, but there are alternatives out there if your credit rating is less than perfect. Some cards for bad credit offer such rewards as cashback (albeit at a slightly lower rate), or other perks such as no fees on foreign purchases, or 0% on balance transfers or purchases (albeit at a lower duration). Another alternative if you want to earn rewards as you shop is a prepaid card, as there is no credit check to obtain one. Prepaid cards do not offer credit – you must pre-load a card before you use it – but some offer impressive cashback rates with specific retailers.
If you can be sure that you have the means to pay off your balance in full every month, the APR (which is high on many reward cards) will not need to be considered, as you will never be subject to it. However, if your financial situation suddenly changes and you’re unable to meet your financial obligations, a high APR can be quite crippling. In this situation it would be advisable to pay off the balance as soon as you possible, or you might consider transferring the debt to a new balance transfer credit card, so that you can pay it off interest free over a period.
Reward credit cards can be lucrative – money for nothing! – but they are only financially beneficial if you use your credit card often, and most importantly you pay off your balance in full every month. If you add a monthly fee into the mix, you need to be earning a lot more in rewards to make it worthwhile. The best thing to do is to sit down and work out, based on your average monthly credit card use, how much you would be likely to spend on your card (and where you would spend it), including any monthly fee, then work out how much you would be able to redeem in rewards.
Yes, they can. The rewards offered with such a credit card are at the discretion of the card provider and can be altered, reduced, or increased at any time. You will receive a notification from your credit card issuer before any changes are made – and you have the right to cancel your card if you are not happy with the new terms and conditions.
One way to gain extra rewards is to use your credit card for all your regular spending. The most important thing to remember is that you must pay off your monthly bill in full every month, otherwise, the interest charged will eat into the very rewards you have worked so hard to gain. Set up a direct debit so that you don’t forget. If your credit card is part of a reward scheme, check to see where points can be doubled, trebled, or even quadrupled – there are some great deals out there, if you don’t mind shopping around.
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Last updated: 2 March, 2020