/ Money

Cashback vs reward cards – is cashback always king?

When deciding whether to take out a cashback or a reward credit card, I know where my loyalties lie. But which would you prefer? A card that will pay you to shop, or one that will send you vouchers in the post?

Last month, Barclaycard, my credit card provider, emailed me about ‘exciting changes’ to its Freedom rewards scheme. It was launching a new reward programme, which would provide ‘tailored and valuable offers from thousands of merchants’.

It also said that I wouldn’t be able to earn Reward Money from June and I’d have until 26 July 2012 to redeem any I’d saved up.

To my annoyance, I assumed this would mean an end to the 1% cashback I’ve been earning with Barclaycard since it took over my former Egg Money credit card last year. But my fears were unfounded – my 1% cashback is safe. It’s only Barclaycard Freedom that is changing.

Can reward cards trump cashback?

Thank goodness. My regular deal gives me 1% cashback on everything I buy; Barclaycard Freedom in its previous form only offers cashback at ‘selected retailers’, very few of which I shop at. But it got me thinking about the merits of these types of reward schemes – I find it hard to imagine how they could trump a decent cashback card.

Which? Convo commenter Sophie Gilbert shared her love of reward cards on a previous post:

‘I’ve got two reward credit cards, one with John Lewis and one with House of Fraser, and I love getting the vouchers when they come in the post.

‘I can always find something to buy at John Lewis especially and at House of Fraser, so it’s not as if the vouchers were going to lie in a drawer unused. And it’s not as if I wasn’t going to spend the money on my credit cards either as I use them for all my shopping.’

However, to me, cashback is like getting an annual bonus just for spending as you would normally – all you need to do is pay for things in a certain way.

Other reward schemes may offer higher percentages, but you often sacrifice flexibility by only earning rewards at a certain retailer or group of retailers (such as Sophie’s John Lewis vouchers) or having to accept rewards in the form of retailer-specific vouchers. And I, for one, prefer my ‘flexible friend’ to be exactly that.

Which do you prefer - cashback or reward credit cards?

Cashback cards - I like earning as I spend (52%, 105 Votes)

I don't like either - what's wrong with a normal credit card? (33%, 67 Votes)

Reward cards - I like getting rewards in the post (15%, 31 Votes)

Total Voters: 208

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I find most rewards schemes don’t offer any value to me whatsoever, so a cashback card will always win for me.

Martin says:
10 July 2012

Cash vs rewards doesn’t matter to me, It’s all about which card offers the best % return on the item I’m buying. As long as you would have spent money in the shop you have vouchers for, its as good as cash anyway. I have 3 cashback cards and 2 rewards cards. As long as you pay the balance in full each month, its free money.

I had thought that Avios (previously BA Miles) were more valuable than cashback, given that they can be spent on a business or first class ticket worth thousands of pounds. Because American Express issues the relevant credit card for earning Avios, the mileage earning rate is quite high, given that Amex charges retailers higher fees. However, British Airways doesn’t release enough seats to honour the number of Avios that it issues. For example, a LHR-SYD flight in Club World costs 200,000 Avios, whereas a paid ticket on the same route earns 15,848 Avios for an Executive Club standard Blue member. There are 70 Club World seats on a British Airways 747. It therefore follows that in order to honour the number of Avios it issues, British Airways needs on average to allow 15,848 ÷ 200,000 x 70 = 5½ seats per flight in Club World to be booked using Avios on this route. Silver and Gold Executive Club members earn 26,413 Avios for this flight, meaning that there ought to be up to 9 Avios seats per flight. There are also many British Airways customers who earn Avios other than through flights, e.g. spending on American Express cards, meaning that the number of Avios seats needs to be even higher. Counterbalancing this, some passengers are not Executive Club or OneWorld members who earn no Avios or equivalent. On balance, at least an average of 5½ Avios seats in Club World on this route seems a modest estimate. British Airways releases much fewer than 5½ Avios Club World seats on this route, and likewise proportionately less than it needs to on other routes. The result is that those who hold Avios are unable to spend them because British Airways fails to make enough seats available for Avios bookings to honour the number of Avios that it issues. Consequently only a minority of Executive Club members manage to get the seats they want, and usually only by putting in a lot of time and effort into finding the very few Avios seats that are available. It’s a total disgrace on British Airways’ part. Other airlines are just as bad though.

It depends on overall use – I have a so called “loyalty card” I use it purely and simply because the nearest supermarket uses it – and two or three businesses use the same card. So I get cash off my supermarket purchases when the points build up – but as I stated this does not persuade me to use the supermarket – it is simply the nearest and most convenient. I also always pay my credit card in full every month without fail – so it is free anyway. I no longer fly anywhere usually – and when I do it is free to me – so flight miles never enter my equations.