Rewards and cashback: who's really paying?
Lesson 7 of 12 in our free Credit Cards: Tool, Not Trap guide: a 5-minute money game with the key points below.
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Free with a code from your uni, college, council, landlord or employer (worth £600/year). Lesson 1 of Credit Cards: Tool, Not Trap is free for everyone.
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Questions you'll answer
Illustration: Mo puts £600 a month of normal spending on a 0.5% cashback card and clears it in full. How much cashback in a year?
Now he carries that £600 for a month at 25% APR instead of clearing it. Roughly how much interest for that one month?
Dex: 'I earn 1% cashback, so 22% APR is basically 21%.' What's wrong with that?
Quick facts
- Putting the weekly food shop on the card and clearing it in full → For you. Spending you'd do anyway, zero interest: pure bonus.
- Buying a second hoodie to hit a points bonus → Against you. Spending more to earn points is spending more.
- Paying a yearly card fee that's bigger than the rewards you earn → Against you. If the fee beats the rewards, the card costs you.
- Clearing the full balance by direct debit every month → For you. That's what keeps rewards as profit.
- Carrying a balance because 'the cashback covers it' → Against you. It doesn't: interest rates dwarf reward rates.