With the sounds of Santa's sleigh not too far away, credit card companies are trying to woo those of us with cash back credit cards.
At the moment, there are a number of lucrative deals being launched as we head towards Christmas and it's not surprising.
Cash-back cards are quite popular as they give us shoppers back a percentage of the amount we spend and they make up about 10% of the cards on the market.
Until recently, the average interest rate on purchases has been just 0.72% but American Express has made a big play in the market as they are now offering an impressive 5% cash-back for the first three months, rivalling the previous market leader Capital One, which gives you 4% for the same time period. The rate then reverts to 0.5% to 1.5% depending on how much your annual spend is with Amex and to 1% if you are with Capital One.
Those folks over at Abbey are also now giving us 5% on their cash-back credit card, but it comes with more than a few strings attached! For a start, their offer only applies to the first £1,000 you spend on your supermarket shopping until January 31 2008; this gives you a maximum reward of just £50! How generous of them eh?
Compare this to the American Express card which would give you a return of £247.50 in the first year and the Capital One card £210, assuming you have an average monthly spend of £1,000. The cash reward is paid annually, giving those of us who take out such a card offer now, a bit of a financial boost in time for Christmas 2008.
Michelle Slade, an analyst at price comparison service Moneyfacts.co.uk commented on the cashback credit cards:
"This is a hotly contested market and with Christmas just around the corner it's an ideal time to make full use of these introductory offers," said She said the top two cards gave an "impressive return for just going about your day-to-day spending".
"With neither card imposing a maximum cash-back, your earnings potential is almost limitless, only restricted by your credit limit and spending power," she added.
To make the best returns, hold cash in a high-interest savings account and use the credit card for all purchases; but ensure you repay the balance in full at the end of each month. Cash-back credit cards are generally not suitable for people who carry over a balance: with interest rates averaging 14.9%, interest paid will soon outweigh the cash-back return.
"American Express, while increasing its incentive, has also raised interest rates by 3% on purchases to a hefty 18.9%; a perfect example of giving with one hand, and taking straight back with the other," added Slade.
Other financial brands have joined in on the act too; Sainsbury's Bank has launched a new reward card, giving the equivalent of 2% cash-back in Nectar points on purchases made in their stores. Cash-back on other purchases is just 0.1%.
Some of the benefits of the card include: interest-free credit for 12 months on spending in the supermarket, 0% interest for three months on all other purchases and 0% for 10 months on balance transfers, subject to a 3% fee. The interest rate reverts to 15.9% afterwards.
Sean Gardner, chief executive of price comparison Web site MoneyExpert.com, said the new card was "more evidence of the comeback of cash-back type offers. "
It's a reward scheme with a difference as companies start to get clever and look to target different sectors of the market."
He expects more companies to follow in Sainsbury's footsteps as providers place greater focus on reward schemes to attract new customers.
Gardner added: "Cards offering a financial reward every time the customer uses them are a genuine way for credit card companies to reward loyal customers. "However, it is only any good if it fits in with how you use it sensibly."
So, if you can trust yourself to be sensible and want to be rewarded for your shopping, then maybe a cash back credit card is a good option for you?
Just make sure you do a bit of homework before you start spending on it!
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