A new survey has revealed that cashback and reward credit cards are on the march. Some 42% of credit cards now offer some form of reward incentive, compared to just 27.4% two years ago. There is a huge variety on offer, with 22% offering cashback, 68% a points or voucher system, and 10% Air Miles.
However, the study found that some are decidedly less generous than others.
PopularThe research, from Sainsbury's Finance, revealed that these cards are particularly popular, and while 42% of cards have rewards, some 55% of card holders claim to be rewarded for using their plastic. Indeed, 25% of people planning to take out a new credit card over the next 12 months are doing so because they want to be better rewarded for using their card.
Apparently 31% receive cashback and points, 13% vouchers, 9% flights and 4% something else. It means just 34% of people say they don't get any kind of reward at all. In one sense it's a no-brainer. If you use a card to help stretch your money a bit further, then why not get some free money or goodies at the same time?
The rip offsHowever, there are three ways in which your rewards credit card could be ripping you off, which it is essential to get to grips with before you join the rush to reward cards.
The first, highlighted by the survey, is that you may well be using a card with a scheme that's not terribly generous. Looking at cashback deals for example, on an annual spend of £6,000, the average reward is just 0.77%. Only 27% of the cash back deals available pay 1% or more. It is worth, therefore, thinking careful before choosing your reward card.
This seems a particular rip off when you consider that you can register a non-reward debit or credit card with a cashback site like Quidco.com, and when you shop on the high street you can get cashback deals like 4.5% from Halfords and NCP and 2% from Debenhams.
Changing behaviourThe second potential rip-off is if it changes the way you spend. Some cards will reward you for shopping with particular retailers. Others will offer more cashback for an introductory period - such as three months. If you fully intend to shop with those retailers anyway, and you planned to make particularly expensive purchases in the first three months, then fine. If, however, you find your behaviour being driven by the rewards, there's every chance that you could spend more, and land yourself in financial hot water.
Kim Stephenson, author of Tamingthepound.com warns that you need to be careful about how you spend on a credit card. He says that we think of money on the card differently to salary that's sitting in our current account. There's a temptation to feel as if it is a bottomless pit of 'monopoly money' which leads us to overspend. You need to be very careful to ensure your card doesn't change your attitude.
Finally, you need to be sure you can pay off your bill every single month - and set up a direct debit to ensure you do so. Reward cards are rarely those offering rock bottom rates, so if you cannot pay it off in full for just one month, you can be sure you will wipe out any benefit for the whole year, and in the process you will be ripping yourself off.