Return of the cashback card
| Created: 28/11/2007 |
Cashback's Heyday
When I wrote the original Stoozing FAQ in the summer of 2004, I gave equal prominence to "Stoozing" and "Cashback". At that time, I suggested that an average person would earn between £50 and £200 p.a. from cashback, but that some people would earn well in excess of that. Most cards offered 1% cashback with some offering 2% or higher and a few just under 1%. All lenders had to have a decent cashback card in order to be competitive and win customers. Most borrowers would have been very disappointed with a card that offered as little as 0.5%. There was good money to be made!
The Decline
In the second half of 2004, a few lenders started reducing their cashback rates. One of the first (rather ironically as we shall see later) was Capital One , followed closely by First Direct and American Express. Through 2005 and 2006, cashback rates dropped to a norm of 0.5% and then mostly fizzled out as lenders realised that it was no longer required or would no longer offer any differentiation from their competitors. Notable exceptions were the launch of the Egg Money card in September 2005 with its straight 1% cashback on all purchases, American Express's Platinum card which continued to offer in excess of 1% cashback for high spenders and Morgan Stanley's Platinum card which provided "up to" 1% cashback. Having said that, the Egg Money card was capped at £200 cashback, and the American Express and Morgan deals were poorer than they had been in preceding years. Cashback was not where the action was any more.
Rennaissance
Fast forward to the second half of 2007 and we are witnessing a resurgence of cashback announcements from various lenders. The interesting thing about the card business is that it goes through phases. When a lender comes up with a successful new idea, it is unique and wins them a lot of business. Other lenders then pile in with "me too" offers. After a while, the leading lenders see that it no longer offers differentiation and start to tone down their offers. If this doesn't lose them too much business, then others will follow until it dies out. What has happened with cashback is that so few lenders had decent cashback deals, that it has given some lenders the opportunity to strike back and make it a differentiator again! However, to create a buzz in the marketplace it needs to have something to raise it above the consumer's cynical "cashback - been there done that. Boring!". That is why we are seeing cashback headlines rates of 4, 5 and 6%.... and, true to form, other lenders are following suit!
What cashback offers are around today?
Today's deals split into two groups. Firstly, there are the straightforward cashback deals where you get real "cash" back in your pocket for all your spending. The other group is where you only get cashback for spending at specific outlets or types of outlets. This latter group may also restrict where you can redeem your 'cashback' too. In my opinion, the first group are the true cashback cards. These are the ones that I have in my wallet and the ones that this article will compare. The more restricted ones include the Citi Shell Mastercard which offers 6% cashback on shell purchases for the first 60 days, but this can only be redeemed against further Shell purchases. The other headline rate is Abbey's 5% cashback but this only applies on supermarket shopping until 31st January 2008 and is capped at a mere £1000 of spending. In my opinion, both of these are going for headlined grabbing rates, without being good deals for the consumer, particularly when you compare them to the true cashback cards.
The best of the best - the true cashback cards
The top 3 cashback cards at the moment are undoubtedly, American Express Platinum, Capital One cashback card and Egg Money. American Express is offering 5% cashback in the first 3 months (up to a maximum spend of £4,000), followed by a tiered level of cashback from 0.5% to 1.5% depending on your overall level of spend (0.5% for spending under £3,500, 1% for spending between £3,500 and £10,000, 1.5% for spending over £10,000). Capital One has a similar offer, which is 4% cashback for the first 3 months, followed by a flat 1% cashback thereafter. For borrowers with "excellent" credit ratings there is no charge for the card, but for those with "good" credit ratings there is an annual fee of £18 for this card. Egg Money has no introductory offer, but does have a very respectable 1% cashback on all purchases up to £20,000 p.a.
The table above shows how much cashback would be earned on each card based on the following levels of spending:
- Low. £500 per month plus £500 additional spend for Christmas
- Medium. £1000 per month plus £1000 additional for Christmas
- High. £1500 per month plus £1500 additional for Christmas
- Very high. £2000 per month plus £2000 additional for Christmas
The green, amber and red colours show the highest, middle and lowest cashback respectively for each spending profile. The table shows the cashback payable for the first year (with enhanced cashback where applicable), second year and a combination of the two. Anyone making a decision based on Year 1 cashback should seriously consider the Amex card, even if you are a low spender. For those looking at standard long term cashback, Amex is still top for those who have High or Very High spending profiles, whereas Egg and Capital One would be better for those whose spending is Low to Medium. Looking it over a period of 2 years, Egg is the poorest choice with Amex coming out on top for all spending levels apart from the lowest where Capital One if marginally better.
For a full list of the top cashback deals, please see our up to date and independant Cashback Cards table.
Talk about this article or anything else in our lively free forums.