Cashback Credit Cards: A Beginner's Guide

Learn if you can get cashback on a credit card. Explore how it works, its pros and cons, alternatives and more. Maximise rewards while spending wisely.
Mathew Megens
November 21, 2023
min read

Life can be expensive but if you are looking for ways to make your household budget stretch further, you may have wondered: “Can you get cashback on a credit card?”

Before you even think about getting a credit card, ask yourself this one but very important question: will you pay it off in full every month? If the answer is ‘no’, it’s very unlikely that any cashback or bonus will make up for the fact that you’ll be paying over 20% interest on the balance.

If the answer is ‘yes’, credit cards offer multiple benefits - including cashback - and are easy to manage if you can stay in control of your spending.

When you use a cashback credit card to make a purchase, you'll earn a percentage of your spend back in cash. The amount of cashback will vary depending on the card you choose, but it's typically between 1% and 5%. Some cards offer higher cashback rates in certain categories, such as groceries or fuel.

All humans need to eat to survive, so we’re all going to have to spend money on groceries every week or month for the rest of our lives. We’ll also have to spend on housing costs, heating, gas and transportation. If you have a cashback credit card, you could earn money back without changing your spending habits. 

But before you sign up for one, it’s important to read the small print and ask some questions. In this blog, we’ll explore the legitimacy of cashback on credit cards and some pros and cons to ensure that using one will make a positive difference to your budget.

What is a cashback credit card?

A cashback credit card is a type of reward credit card that allows you to earn a percentage of your spending back in cash. This cashback can then be redeemed for statement credits, cash, or other rewards..

How do cashback rewards on a credit card work?

If the concept of getting cashback on your credit card spending is new, you may be curious about how it actually works. Some people might imagine a shop assistant opening the cash register after each in-store purchase and handing over a collection of notes and coins. While that would be fun, it’s not the case, but it can be enjoyable to see your cashback rewards pile up. And even better is that you often have a choice about how you want to redeem them.

When you use your cashback credit card to spend, the card issuer records the transaction and tracks the amount spent and the amount of cashback due. For example, if you spend £100 and have a 2% cashback credit card, you’ll receive £2 back. Depending on the card, the cashback will either be credited to your card or to your bank account. If it’s paid to your credit card and you have an outstanding balance, the cashback will reduce the amount owing on the card. If you have no balance due, the cashback will be available for you to spend. Some cards pay you back monthly, while others pay you back once a year. 

If that all sounds appealing, the next decision you need to make is which of the three main cashback structures fit your spending patterns. The options are flat-rate cashback, rotating cashback and tiered cashback. 

With flat-rate cashback, you earn a consistent percentage of cash back on all eligible purchases. This simplicity makes it easy to track and understand your rewards. For example, a card offering 2% flat-rate cashback would earn you £2 back on every £100 spent, regardless of the spending category.

Tiered cashback structures categorise spends into different reward tiers, offering varying cashback rates for each tier. This approach targets specific spending habits, allowing cardholders to maximise rewards on categories they frequently use. For instance, a card might offer 1% cashback on general purchases, 3% cashback on groceries, and 5% cashback on petrol.

Rotating cashback structures introduce a dynamic element to rewards. Each quarter, as an example, the card issuer selects a few specific categories, typically three to five, where cardholders earn a higher cashback rate, often ranging from 3% to 5%. This encourages cardholders to adjust their spending habits to capitalise on the rotating categories.

Factors to consider before getting a cashback credit card

It’s important to do your research before signing up for a cashback credit card and to check your eligibility. Know the credit score requirements for the cashback card you're considering. If yours is below the required range, you may not be accepted or be eligible for all the benefits.

Some cashback cards have annual fees. Evaluate whether the cashback rewards justify the annual fee. If you prefer to avoid annual fees, prioritise cards that offer no annual charge.

Understand the options for redeeming your cashback rewards. Some cards offer statement credits, cash deposits, or travel rewards. Which of these would be most helpful for you? If you can already pay off your credit card bill in full each month, you might find it handy to have a cash deposit that you can send straight to your savings account. If you love holidays and exploring new countries, travel rewards will give your everyday buys a purpose. 

Be aware of additional fees, such as foreign transaction fees, balance transfer fees, and late payment fees. Also, look at whether there are any restrictions on where you can get cashback. These fees and restrictions can erode the value of cashback rewards, particularly if you spend a lot of money in a restricted category.

Is it possible to get a card without any annual fees? Of course! The HyperJar card - which is a prepaid debit card and not a credit card - is completely free, so there are no annual charges, and there are no added foreign transaction fees. All UK residents are eligible, whatever their credit score. And users can track their spending in a visual way through the HyperJar app as well as use the app for household budgeting. Allocating money to different jars gives users a feeling of calm and control over where their money is going and helps people plan for big events like Christmas, birthdays and holidays.

Benefits of credit card cashback rewards 

A major win when it comes to credit card cashback is that you can reduce everyday spending by getting cashback. For example, when you get to the till in your favourite supermarket, would you prefer to pay £100 or pay £100 and get £2 back? If it’s the latter, then a credit card cashback will help you do just that.

Many cashback credit cards come with additional benefits, such as travel insurance, purchase protection, extended warranties, and access to exclusive deals or discounts. These perks can further enhance the value of your card.

If you’d like some help with tracking and managing spending, a cashback credit card could help with that. They often have an online portal, an app or a detailed statement that can provide detailed spending breakdowns, allowing you to track your expenses and identify areas where you can cut back or optimise your spending patterns.

If you choose rewards that give you money off the balance, this helps encourage responsible credit card usage by providing a tangible incentive to pay off your balance in full each month. This helps avoid accumulating debt and interest charges.

Most cashback credit cards offer flexible options for redeeming your rewards. You can typically choose to apply cashback as statement credits, receive cashback as a direct deposit into your bank account, or convert it into travel points or merchandise.

Potential drawbacks when using a cashback credit card

While cashback credit cards can offer attractive rewards, it's essential to be aware of potential drawbacks to ensure responsible usage and avoid financial pitfalls.

Cashback credit cards often come with high-interest rates on balances which aren’t paid off in full, and these will very quickly erode the value of your cashback earnings. To avoid interest rate charges and getting into debt, it’s a good idea to pay off the balance in full each month.

Another danger is the temptation to overspend to earn rewards. The ease of using credit cards and the incentive of cashback rewards can lead to impulse purchases and increased spending.

There are also rewards redemption limitations with some cards. Some cards may restrict redemption to statement credits or specific rewards, limiting your flexibility.

And don’t forget about the impact on credit score. Applying for and using multiple credit cards can impact your credit score, especially if you open too many accounts in a short period.

All of these pitfalls can be avoided with a HyperJar prepaid debit card. It doesn’t affect your credit score - because you can’t get into debt or take out credit - and there are no eye-watering interest rates. It’s easy to manage your spending on the HyperJar app by allocating different amounts to different jars. It can even help you avoid overspending because you can limit spending on the app if you identify a category in which you’ve previously made some dodgy impulse buys. All of this is done in a visual way so you can see how much you have to spend and where it’s going, rather than just guess and hope for the best.

How to choose the right cashback credit card for you

1. Evaluate your spending habits

Before diving into the world of cashback credit cards, take a step back and assess your spending habits. Scrutinise your monthly expenses, identifying the budget categories where you consistently spend the most. Do you regularly dine out, fill up on petrol, or shop for groceries? Once you've mapped out your spending patterns, compare them to the cashback rewards offered by different credit cards. Remember, the key is to maximise cashback without altering your spending behaviour.

2. Consider your credit score

Before you apply for a cashback credit card, it’s a good idea to be aware of your credit score to ensure you’re eligible. Finding this out just requires downloading one of two free apps - Credit Karma or Experian. To get started, create an account and provide some basic personal information. Once verified, you'll gain immediate access to your credit score and detailed credit report. 

3. Look for a card with a sign-up bonus

Once you are sure you want a cashback credit card, do your research into what benefits are available for new cardholders. This could be anything from bonus cards to a cash incentive, as long as you spend a minimum amount on the card for a specific time period. Use a financial comparison tool or website to find a list or table of all the bonuses being offered and all the conditions associated with them. 

4. Choose a card with bonus categories that match your spending

Once you’ve evaluated your spending habits, as per the first step, you will be more aware of what bonuses would be most useful to you. For example, if you dine out frequently, a card with a higher cashback rate on restaurants and pubs would be beneficial. Or if you spend a lot on groceries, you might choose a card that offers 5% cashback at the supermarket.

5 Compare annual fees and other fees

When comparing annual fees and other fees on cashback credit cards, it’s important to consider the overall value you’re getting from the card. Some cards may have high annual fees, but they also offer generous cashback rewards or other benefits that may offset the cost. Other cards may have lower annual fees, but they may also have lower cashback rewards or more restrictive terms. The best way to compare cashback credit cards is to look at the total cost of ownership, which includes the annual fee, interest charges, and any other fees. By comparing the total cost of ownership, you can identify the card that offers the best value for your needs.

HyperJar has no annual fees and you get generous cashback, compared to a flat rate cashback credit card.

Alternative ways to get cashback if you don’t want a cashback credit card

A frequently searched phrase on Google is How can I get cashback without a credit card? 

Your options to get cashback without using a credit card are:

  • Use cashback websites and apps such as HyperJar, TopCashback, and Swagbucks
  • Look for a bank that offers cashback with debit cards.
  • Use a retailer specific loyalty program, such as Sainsbury’s Nectar card or Boots advantage card, to earn points that can be converted into money off purchases.
  • Download a receipt scanning app like Shoppix or Storerewards that offer cashback for uploaded receipts

Analyse your monthly expenses to identify your primary spending categories. Are you a frequent diner, an avid traveller, or loyal to a specific shop? 

Travellers may like travel rewards cards that earn points or miles that can be redeemed for travel expenses, such as flights, hotels, and car rentals. For those that  want flexibility in how they redeem their rewards, points rewards cards offer a variety of rewards, including merchandise, cash back, and gift cards. For others that want instant cashback without having to collect anything, a HyperJar cashback gift card is the answer. When you buy a giftcard to spend at a retailer, cashback lands in your HyperJar account straightaway, which you can then use to make future purchases or withdraw to your bank account.

Use HyperJar card and app to get cashback without a credit card 

If the concept of cashback appeals but you’re undecided about whether or not you want to commit to a credit card, HyperJar can help.

The HyperJar money management app and prepaid card lets you earn cashback without a credit card. Simply buy gift cards for your favourite stores and restaurants, and you'll earn cashback on every purchase. You can also use your HyperJar card to shop in stores and online.

And HyperJar has other features to help you manage your budget and make it stretch further. With HyperJar you can:

  • Organise finances visually in pots in the free app
  • Work out your Money management without the risk of debt or overspending that you might have with a credit card
  • Get access to cashback offers to many of your favourite brands, with extra boosts at specific times of year.

Key takeaways 

The most important thing to consider when looking into cashback credit cards is whether or not it aligns with your current spending habits. Before comparing rates or bonuses, map out your monthly budget and work out where you spend most of your money. This will help you identify if a cashback credit card with a flat-rate, tiered or rotating reward structure is best for you.

Next, make a list of all the terms and conditions and potential financial pitfalls. If you don’t pay off the credit card each month, you run the risk of getting into debt which would negate the benefit of all the cashback.

If you can handle all the risks, a cashback credit card can be a great way of getting cash back on everyday spends if you use it responsibly. This leaves you with more money to play with each month, without restricting your spending habits. And depending on what card you choose, there are other benefits such as no foreign transaction fees or an app that displays spending insights to help you manage your money better.

HyperJar can help you manage your budget in a visual way, through the app, as well as get you cashback at your favourite retailers. All UK residents are eligible, without the need for a credit score, so you can download the app now and start earning cashback straight away.

Mathew Megens

Co-Founder of HyperJar

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