Be cashback card clever (From Daily Echo)

Martin Lewis: 10 things about cashback cards you need to know

2:22pm Friday 28th October 2011 in Money Saving Expert By Martin Lewis

Be cashback card clever

Are you buffing your MoneySaving halo because you don't have any credit cards? I'm afraid I'm going to have to take the shine off it. Provided you neuter their borrowing ability, for many credit cards are by far the BEST way to spend, and you should be holstering one in your card arsenal.

Not only do you get extra consumer protection, but get the right ones, cashback cards, and they pay you to use them too, meaning many can be £100s better off. Better still, now is the perfect time to grab one, as you can get big cashback over the high spend festive period. Here are my 10 cashback card need-to-knows:

1) They get paid when you spend - claw it back

Retailers are charged 1.5% to 3% of your spend when you pay by card. Cashback credit cards effectively put this amount, tax-free in your pocket, in the hope of tempting you to spend so they can charge interest. Yet the savvy can earn at no cost.

2) Always repay in FULL by direct debit

This is the golden rule, and your way to emasculate the plastic and stop it charging you any interest (usually 20%ish APR), which would dwarf the cashback. The best way is to use a direct debit to ensure you never forget and ruin it all. Most cards list this option on forms. If not, call and request it.

However, one final warning: never, ever, ever withdraw cash from ATMs. You'll often be charged a fee, plus even if you pay the card off in full you'll usually be charged heavy interest.

3) It's now effectively a DEBIT card that pays you – use it for everything

As the direct debit takes care of the 'borrowing' aspect of the credit card, it's now far more like a debit card, as it's paid from your bank each month. To max the gain, use it for ALL normal daily spending, replacing cash, cheques and other plastic after all using them gain your nothing. It's also not a bad budgeting technique, as you see your months total expenditure in one go.

Plus, if your employer allows, put expenses on too, if you can always clear in full.

4) Huge 5% cashback for the next three months

Capital One’s World Mastercard pays currently newbies 5% for the first 99 days (max £100 in that time). After that, rates are tiered up to 1.25%. Though you must have a good credit score, earn £20,000+ and own your home. Fail to fully repay – and as well as a smacked wrist from me – you'll be charged 19.9% representative APR.

If this doesn’t fit, see my full best-buy guide at moneysavingexpert.com/cashback

5) Now's the PERFECT time - 5% on Xmas and Jan sales

Apply now and, for Capital One, the accelerated cashback covers the higher-spend Christmas and January sales periods. Of course, if you've a big ticket item due, like a wedding or kitchen, it's better to hold off tomax the cashback for that (though there's no guarantee the deal will still be around).

6) Up the gain with your partner

Those in trusting relationships can maximise the gain on card. For example, with Capital One, Janet applies making John the second cardholder, so both can spend and get 5% cashback. Once the intro deal ends, John applies and does the same to bag a further 5%. After that, they both use Janet's card, as cashback rates are tiered.

7) Or get 3% back on all petrol spending

Someone filling up a typical size tank each week now spends an eye-watering £3,500/year on petrol – by far the biggest single item people use plastic for. No wonder a wave of petrol cashback cards, which pay you money back when you buy fuel, are tapping in.

Santander pays 3% cashback on fuel spend up to £300/month, 2% at department stores and 1% in supermarkets. The downer's a £24 annual fee, so ensure you'll use it enough to at least cover that. A family spending £60 a week filling up and £150 on food would make £150 a year (and that's after the fee).

You must earn £7,500+ and pass a credit score. Fail to fully repay and it's 18.9% rep APR. More options and petrol savings tips at moneysavingexpert.com/petrol

8) The impact on your credit score

Every application for any product marks your credit file. One application has a very limited impact, though lots in a short time can be a major hit. So it's always best to prioritise applications in order of importance, eg, mortgage first. Once that's done, shift existing debts to a 0% balance transfer. Cashback cards come after in that hierarchy.

9) Free protection on your purchases too

All credit cards, including cashback cards, have one over on debit cards. Spend £100 - £30,000 on them and Section 75 laws mean the card company's jointly liable with the retailer, so if an item's faulty, or the company goes kaput before delivery, you can go to it to get your money back.

This applies even if you only pay a deposit on the card. Buy a £3,000 TV and pay just 10p on the credit card and, they’ll hate me for telling you, the card company’s liable for the WHOLE £3,000.

10) Many can earn £100s/year

If you do all spending on the card, and of course pay off the balance in full by direct debit (have I mentioned that yet?) it's easy to hit big amounts. Spend £5,000 on Capital One and you'd earn £80 in year one. Spend £10,000 and it's £145, £20,000 is £230. All this just for changing the plastic you use.