The benefits of credit card cash back schemes

September 11, 2006

By Peter Kenny

With the announcement last week from Morgan Stanley that they are increasing the cash back bonus on their Platinum credit card to 3%, now would be a good time to explain just how a cash back credit card can work for you.

There are many different types of credit card reward schemes around, with one of the most popular being the cash back scheme. This scheme can allow you to get cash back on some purchases when you use your card. If you are looking for a credit card, then you might be able to benefit from such a scheme. Here is some useful advice about the benefits of cash back credit cards.

What is the cash back scheme?

The cash back scheme is basically an incentive that some credit card companies offer in order to make their card seem more appealing. The card company will offer you a certain amount of cash back on purchases you make on your credit card. This means that the more money you spend, then the more money you will get back. There are around 40 or so such offers on the credit card market at present, so it pays to shop around for the best deals.

What are the terms of these cards?

The terms of cash back scheme cards can vary, so it is important that you read the fine print carefully. However, in general these cards will give you around 1 - 3% of the purchase value back, with the money you make being given to you after 12 months. Some of the lenders offer cash back for an initial period only, whilst other companies offer the rates permanently.

What are the costs?

Although these cards can be beneficial, there are a number of costs involved. Due to the extra benefits this card can give you, the APR rate tends to be higher than with other cards. Also, the conditions by which you can receive the cash back tend to be very strict, and if you are ever late with payment or break the terms then you will lose the money you have earnt.

Special offers

In addition to the regular cash back incentives, some lenders will offer special rates during holiday times, such as Christmas. The card issuer might double the cash back points you can receive during this busy period, meaning that you can earn the most money at the time when you spend the most money. This can be very appealing, especially if you often spend a lot on credit cards over the festive season.

Paying the balance

Although there are benefits to cash back schemes, they don’t suit everyone. If you are using a credit card to borrow money and you cannot pay back the balance quickly, then cash back scheme cards are not the best solution because the APR is higher. However, if you pay back your balance in full each month, then a cash back scheme is a great idea. By paying back your balance in full you are not subject to the higher interest, and so you can earn money on the purchases that you would normally make at no extra cost.