There are two main types of cashback: cashback sites and cashback credit cards. Cashback sites operate online, and you can sign up to as many as you like. Most are free to join but some charge an annual fee or a fee for joining the premium service. You have to make your purchase by going through the link on the cashback site, and then the money you’ve earned on the purchase is typically deposited into your bank account. There is also normally the option of having the money withdrawn as a gift card which can often result in a higher reward.
Cashback credit cards work slightly differently. Instead of using a specific website, you just need to make purchases with the card itself, and then you receive a percentage of your spending back as a cash reward. Some banks may charge monthly fees for this type of credit card, so it only really benefits you if you earn more rewards than you pay in fees. It’s also important that you repay the balance in full each month as the interest charged on your borrowing will likely outweigh any cashback reward.
Where do the cashback rewards come from?
Cashback sites work through driving traffic to the retailer. The retailer then pays the cashback site if you make a purchase, and that payment is shared with you. It’s similar to how affiliate links work on social media. In some cases, the cashback site may even receive a payment when you click through using their link, without making a purchase at all. This is why it’s so important that you use the link provided by the cashback site, and that you regularly clear your cookies to ensure the trail can be tracked. If the retailer cannot make the established link between your purchase and the affiliate link from the cashback site, you won’t earn the cashback reward.
With cashback credit cards, the rewards are typically generated from the interest and fees customers pay but they may also come from the fees paid by the retailer when they accept a payment by credit card. The idea is to encourage you to use your credit card more often, but you should remember that a credit card is a type of borrowing, so even if you do get rewards for using it, you should only really borrow when you need to.
What to look out for when using cashback
In the same way you can get a loan online, cashback services are also online meaning they are super accessible, and you can sign up any time of day. But, also like applying for credit, there are things to consider before using cashback on your usual online purchases.
Retailer Discounts
In most cases, using a cashback site is likely to be a fairly straightforward process, but cashback rewards can invalidate discounts and promotional offers from the shop itself. It’s worth checking if your cashback reward is more than you would save with the discount so that you don’t lose out. Although it may only be the difference of a few pounds, every penny counts!
Cookies
Cashback sites work by being the referral source of the retailer you are visiting. Unfortunately, your stored cookies could interrupt the tracking of your online journey from cashback site to shopping site, causing your cashback to fail. You can clear your cookies in your web browser by going into the Privacy section of your browser settings.
Interest Rates and Fees
Cashback credit cards may have higher interest rates than non-cashback credit cards or they may charge annual or monthly fees. If you use your credit card often and pay the balance in full every month, it may be worth the higher interest rate or fees. However, if you frequently pay only the minimum payment, or you don’t use your credit card that often, then the cashback rewards are unlikely to outweigh the interest charged for your borrowing. For example, if you had a monthly fee of £5, and your cashback rewards offered 2% back on all your spending, you would need to spend at least £250 a month to cover the monthly fee (and you would need to repay this in full every month to avoid paying interest).
Fees, late returns and finding the best discount
Most of the top cashback sites are free to join, but to access the premium service you may have to pay a fee, or the cashback company may retain some of the cashback rewards as payment. There are benefits to premium versions, and usually the fees are around £5 so if you shop often, it might be worth it, but it’s a good idea to check first. It’s also important to note that it can take a long time for the cashback rewards to reach your account, and in some cases the payment might have failed altogether. Try to keep a list of the cashback rewards you are expecting so you know when you haven’t received one. Finally, always check that the cashback reward is the cheapest option. For example, getting an insurance policy for £500 with a £100 cashback is still more expensive than getting an insurance policy for £300. While having the money sent to your bank account might feel like a win, ultimately you lose out if there was a cheaper option available.
More Information
A guide to managing your money: Top Financial Mistakes
A guide to managing your money: Invisible Spending
A guide to managing your money: Budgeting
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