Cashback Credit Cards Explained: Are They Worth It?
A cashback credit card pays you back a small percentage of what you spend. Used for everyday spending you'd make anyway, and paid off in full every month, it's a simple way to get a little money back. Used any other way, the interest can quickly outweigh the reward.
Key takeaways
- Cashback cards return a percentage of your spending, usually paid monthly or yearly.
- They're best if you repay in full every month. Interest usually costs more than the cashback earns.
- Some cards charge an annual fee. Only worth it if your extra cashback beats the fee.
- Watch for caps, tiers and exclusions such as cash, balance transfers and gambling.
- You still get Section 75 protection on eligible purchases.
This is general information, not financial advice.
How do cashback credit cards work?
You use the card for normal purchases, and the provider credits a percentage of your eligible spending back to you. Depending on the card, cashback may be:
- added to your card balance monthly
- paid once a year on your account anniversary
- paid once you've built up a minimum amount.
Card structures vary:
- Flat rate. The same percentage on all eligible spending.
- Tiered. Higher rates once you spend above a threshold.
- Category-based. Higher rates at certain retailers or types of spending.
- Introductory boost. A higher rate for the first few months, often capped.
The golden rule: pay in full
Cashback percentages are small. Card interest rates are much larger. If you carry a balance, the interest will almost always cost more than the cashback you earn.
So a cashback card makes most sense if you:
- already pay off your card in full each month
- put regular spending on it (groceries, bills, fuel)
- set a direct debit for the full balance.
If you carry a balance, a Low APR credit cards or Balance transfer credit cards option is usually better value.
Fee or no fee?
Some cashback cards charge an annual fee in return for a higher cashback rate.
How to decide: estimate your yearly spending on the card, then work out:
- cashback on the fee-free card
- cashback on the fee-paying card, minus the fee.
Fee-paying cards generally only win if you spend a fairly large amount each year. And because the fee is included in the APR, these cards often show a higher APR. See APR vs Representative APR: What Credit Card Rates Really Mean.
Small print to check
- Caps. A maximum amount of cashback per year, or on intro rates.
- Exclusions. Cash withdrawals, balance transfers, fees, gambling and sometimes certain payment types don't earn cashback.
- Minimum payout. You may need to build up a certain amount before it's paid.
- Losing cashback. Some cards withhold or cancel cashback if you close the account or miss payments.
- Card acceptance. Some cashback cards run on networks that fewer UK retailers accept. Keep a backup card.
- Foreign transaction fees. Spending abroad can cost more than you earn. See Using a Credit Card Abroad: Fees, Exchange Rates and How to Save.
Cashback vs rewards points
| Cashback | Points / miles | |
|---|---|---|
| Value | Simple, real money | Depends on how you redeem |
| Flexibility | Use it on anything | Often tied to a scheme or partner |
| Best for | Simplicity | People who'll use the points well, such as frequent flyers |
If you're not sure you'll use points well, cashback is often the safer choice. See Avios and Airline Miles Credit Cards: How They Work in the UK and Rewards & travel credit cards.
A worked example (illustrative only)
Imagine you put £800 a month of normal spending, like groceries, fuel and bills, on a card. That's £9,600 a year.
- On a fee-free card paying a flat rate, your cashback is simply that rate applied to £9,600.
- On a fee-paying card with a higher rate, work out the cashback on £9,600 and then subtract the annual fee.
Whichever leaves you with more is the better deal for you. Run the same sum with your own spending. If you spend less, the fee-free card often wins. If you spend a lot and always repay in full, a fee-paying card can come out ahead.
Now imagine you carry an £800 balance for a month at a typical standard rate instead of paying it off. The interest on that single month can easily wipe out several months of cashback. That's why paying in full matters so much.
Who a cashback card isn't for
- People who regularly carry a balance.
- Anyone using the card to "earn" by spending more than they otherwise would.
- People who mainly need cash, as withdrawals don't earn cashback and cost extra.
- Anyone already struggling with repayments. If that's you, MoneyHelper offers free, confidential guidance.
Getting the most from a cashback card
- Put regular, planned spending on it, not extra spending to "earn more".
- Pay the full balance by direct debit every month.
- Avoid cash withdrawals.
- Keep an eye on caps and intro periods so you know when your rate drops.
- Review once a year: is the fee still worth it?
Cashback and your credit score
Applying leaves a hard search on your file. Using the card regularly and paying in full on time can build a positive payment history. Check your eligibility first with a soft search on eligibility checkers explained.
Compare cashback cards
On Cashback credit cards every card is shown in the same layout: cashback rates, caps, fees and the standard rate.
Frequently asked questions
Are cashback credit cards worth it?
They can be, if you pay in full every month and use them for spending you'd do anyway. If you carry a balance, interest usually outweighs the cashback.
Is credit card cashback taxable?
Cashback on personal spending is generally treated as a discount rather than income for most people. If you're unsure about your situation, check with HMRC or a tax adviser.
When is cashback paid?
It depends on the card: monthly, annually, or once you reach a minimum amount. Check the terms.
Do balance transfers earn cashback?
Usually not. Most cards exclude balance transfers, cash withdrawals and fees.
Do I need a good credit score for a cashback card?
Many cashback cards are aimed at people with good credit histories, though criteria vary by provider. Use an eligibility checker before applying.
This is general information, not financial advice. Cashback rates and terms change, so check the provider's current details.
