You might have heard of cashback cards or even cashback websites as ways to make some extra money as you shop.
But what is cashback? Simply put, cashback reward schemes give people a percentage of whatever they spend back to them. This could be tracked directly to your card or through a website that tracks your transactions.
In some cases, you’ll receive the cashback instantly and then you can use it to spend on whatever you want. But sometimes, you’ll need to reach a minimum limit before you can cash out on your cashback. And in other instances, a card will pay you the cashback amount at the end of every month or at a regular intervals like bi-annually or annually.
Some cashback schemes offer the same amount of cashback for each type of purchase, while others offer different rates depending on what you’re buying.
Below, we’ll answer what does cashback mean, how does cashback work, what is a cashback credit card, what is a cashback debit card and is cashback a good deal or not? We’ll also share the types of cashback schemes there are to choose from.
How Does Cashback Work?
To start benefiting from cashback, you’ll need to pick the kind of cashback you want. The main options are:
- Cashback credit cards: these can pay you in cash, which will be a percentage back of what you spend, or in points that you can then convert to spend with hotels, airlines or shops
- Cashback debit cards: these are linked to bank accounts, and can pay a flat cashback rate on all or some of your spending
- Cashback store cards: some shops offer their own rewards cards that will pay you in cashback you can spend with them
- Cashback prepaid debit cards: an account like HyperJar, which might offer cashback as a percentage of what you spend, or offer cashback when you buy special gift cards
- Cashback websites: typically they will offer you cashback when you shop via them for your purchases
But what does cashback mean? Well, once you start spending through a cashback scheme, a percentage of the value of each purchase you make will be collected as cashback and given to you annually or sometimes monthly.
Some cashback card providers offer 1-3% cashback on each purchase. Some offer different levels of cashback depending on the spending category. For example, a cashback credit card might offer 1% cashback on groceries and 2% on other categories. This makes it important to consider your spending habits when choosing a cashback credit card to maximise the rewards you generate from using it.
Cashback websites also use cashback reward schemes that work on a similar basis. When customers shop online through the cashback website, they give shoppers cashback on each purchase. Again, the percentage cashback earned can vary between sites and between different types of products.
How does a credit card cashback work?
Ever wondered ‘what is credit card cashback?’ The good news is that the answer is pretty simple. A cashback credit card is just like a regular credit card, which cardholders can use to do their everyday spending as long as they pay off the balance each month.
Each time a cashback credit card is used, the cardholder earns a percentage of the value of the purchase and any cashback earned is given to cardholders at a specific time. This could be monthly or annually.
The amount of cashback you receive is determined by the terms and conditions of the card, so these are important to check out before applying. Make sure to compare between providers.
What is a cashback card with rewards?
Some cashback credit and debit cards provide extra perks like access to events, financial benefits like 0% APR transfers, and discounts with certain stores or businesses.
Some cards – like the HyperJar rewards card – partner with merchants to provide tailored deals (for example, when you spend £50 with your favourite brand, you might get an extra £10 to spend) to cardholders.
HyperJar also offers a higher rate of cashback when you buy a cashback voucher in the HyperJar app. For example, you can buy a voucher for John Lewis, Boots or Costa coffee, receive instant cashback and then use the voucher to pay at the tills, online or at the store.
Flat rate cashback vs tiered rate cashback
If you want to get a cashback credit card, you need to pay attention to whether they are offering fixed rates or tiered rates. Flat rate cashback credit cards offer a flat cashback rate on all purchases. So, if the card’s cashback rate is 2%, you’ll get 2% cashback on all your purchases.
If you opt for a tiered rate cashback credit card, you can expect that different spending categories will earn different cash back. For example, you might receive 1% cashback on groceries, 2% on energy, and 3% on retail.
Whether you choose a flat rate or tiered rate cashback card will depend on your spending habits. You should calculate which card type will give you the best deal based on where you spend most of your spending.
Benefits of Using Cashback
So, now we have answered the questions of ‘What is cashback?’ and ‘How does cashback work?’ it’s time to assess whether it is worth doing. The answer depends on the person, but owning and using a cashback credit card or debit card has several benefits.
Here are the top benefits of cashback.
1. Earning money back on your purchases
While obvious, you can’t talk about the benefits of using a cashback card without talking about the ‘cashback’ element.
For each purchase a cardholder makes, cashback credit cards give users a percentage of the value of their purchase back. So, cashback credit cards can be a money-saving hack that makes your money go further and gives cardholders more money to play with.
2. Improve your credit score
Once they know the answer to ‘what is cashback?’, the next step for some people is to question whether cashback is good for improving their credit score? It can be if you choose a cashback credit card. If you always pay your card balance off each month, you can build up your credit score.
Having a good credit score is vital for a few reasons. You need it to be approved for loans – including business loans, personal loans, and mortgages – which are sometimes essential.
What’s more, the better your credit score, the more favourable the loan terms will be. In other words, a good credit score gives you access to loans with lower interest rates – a.k.a. less expensive loans, making you wealthier in the long term. It may also help you secure a more flexible loan repayment timeline.
3. Some offer a sign-up bonus
In addition to the cashback you earn from spending, many cashback credit cards also offer a sign-up bonus.
Is cashback good enough to outweigh any annual fees charged by the card? This is something you’ll have to watch out for. Ensure that the perks of the card you apply for outweigh the annual fee, if there is one, or make sure you opt for a card without yearly fees, like the one offered by HyperJar.
4. Rewards when shopping
Cashback isn’t the only reward that some cashback cards offer.
Sometimes, in addition to cashback on your purchases you can get access to extra benefits like discounted products, interest-free transfers, or priority access to events.
Drawbacks of Cashback
So, is cashback a good deal? For some, it can be an easy way to earn a little, or save a little, depending on how you look at it, from spending.
1. Can encourage you to spend more
With the promise of earning cashback on your purchases, cashback credit cards sometimes encourage cardholders to spend more than they otherwise would. This is especially true for cards that have a minimum spending amount to earn any money back on your purchases.
Cashback can be a good deal if you have the self-control to only spend as much as you usually would. Buying more just to earn cashback defeats the purpose of owning a cashback card. If you don’t trust yourself to be disciplined, it might be better to use HyperJar, which is a prepaid debit card. It’s impossible to get into debt so the card just won’t work if there is no money in your account.
2. Cost of the card can exceed cashback earned
Some cashback credit cards charge cardholders an annual fee. Though you might be lured in by a card provider’s generous cashback offer, you should check that the cashback, perks, and rewards you receive from using the card outweigh how much the card will cost you each year.
After all, many people don’t use their credit card enough to earn enough cashback to cover this fee.
3. Usually have higher interest rates
If you cannot pay your cashback credit card back in full each month, then the balance you owe on your card will be subject to high interest rate, usually above those of traditional credit cards (which is high enough already).
Is cashback a good deal? Well, not always. If you’re inclined to spend more than you can pay off immediately, cashback cards can be a dangerous way to acquire debt quickly. This far outweighs the benefits of earning cashback. It’s important to learn how to avoid debt where possible to remain financially stable.
Cashback Summed Up
So, what is cashback and is cashback good or not?
Cashback reward schemes pay cardholders a percentage of their purchase back each time they spend and can be an excellent way to make extra cash back on your purchases… in some cases.
If you can trust yourself to pay off your cashback credit card balance in full each month and not overspend in pursuit of cashback, you might reap the rewards of a cashback credit card. If not, you’ll probably end up racking up more debt than the cashback card is worth. But there is a way to get cashback and avoid debt, and it’s as simple as downloading the HyperJar app and registering for your free HyperJar cashback card. There are no annual fees to cancel out your cashback and you can earn up to a generous 2% on everything, plus get extra rewards.
Rewards with the HyperJar Card
HyperJar gives you access to huge discounts from every big-name retailer you can think of. You’ll find these on the Shops tab of the HyperJar app, where you’ll see discounts on everything from theatre tickets to takeaway pizza. Or you can get up to 15% instant cashback at other retailers when you buy a HyperJar cashback voucher. For example, if you love a takeaway coffee, buy a £30 Costa card for the week. You’ll get 7.5% cashback on the £30 instantly (£2.25), that you can spend on whatever you want, and you can use the voucher at the till every day until it runs out.
There are hundreds of retailers to choose from in the app.
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