Cash Back or Rewards - Which Would You Choose?

In the battle for new customers, credit card companies are offering to reward users for simply spending on their cards. The two most attractive systems seem to be cash back and rewards.

Cash Back Kings

Cash back cards reward users for spending by giving back a percentage of their annual spend. The percentage of cash back depends on the user’s annual spend, rising from 0.5% to a current best rate of 2%. However, there is often a minimum salary clause, and also a charge if the user spends less than a certain amount. The cash back advantage only works if the balance is paid off in full at the end of the month, otherwise the interest charges completely wipe out any gains. Cash back is not given as real crisp banknotes; the cash back is usually credited against next month’s spend.

Rewarding Cards

Reward cards offer a wide range of benefits, usually by awarding points (or similar) for every £1 or £2 spent on the card. Rewards can either be used against items in a catalogue, or as vouchers in certain retail outlets, or even towards major purchases such as a car.

Some are more rewarding than others

Comparing exactly what each point on various schemes is worth is an interesting exercise, and a frightening one when users realise just how little their rewards can be worth. Again, reward card schemes only work well if the balance is paid off in full every month. Otherwise the rewards gained are wiped out by the interest charged.

Sound Rewards

For music, lovers, there are two tempting choices in the rewards card market.

The Sony Card (issued by MBNA) offers Pulsebeats that can be used towards Sony products. Just by signing up, a new customer earns 2000 Pulsebeats, sufficient for a cd, dvd or Playstation game. 1 Pulsepoint is earned for every £1 spent, and triple Pulsepoints earned when buying any Sony products using the card. It currently also offers 0% on balance transfers, but charges a 2% fee to do so.

The Virgin Shopaholic card (issued by MBNA) offers points towards items in their Members Shop, an exclusive online site. A regular email keeps card holders in touch with the latest special offers and competitions on the site. Points are offered at a rate of 1 point for every £1 spent on the card. Card holders can also enjoy 10% off purchases at the Virgin megastores web site, money off Virgin wines, and 20% off Virgin mobiles. There are also special deals on Virgin cosmetics, lingerie at figleaves.com, car insurance, and Virgin experience days.

The Shopaholic card has a low rate of interest, currently 10.9%, and is even available in ‘cheeky pink’. Alternatively, the Virgin Balance Transfer card offer points, but has a higher rate of interest, currently 15.9%.

Cash Back Champions

The best cash back cards currently offered are by American Express. Their Blue card offers 0.5% cash back for the first £2,000 spent, and 1% over £2,000. (Spend over £9,000 per annum and the Platinum card offers a better rate, but has a salary minimum of £20,000 per annum.) Since American Express cards are not universally accepted, smart card users might wish to have a non-Amex card in their wallet. The Morgan Stanley card offers 1% cash back on the first £2,000 of spending, and 0.5% on all spending above.

What’s best?

It depends on what the user wants to gain. If a big Sony purchase is on the horizon, the Sony card offers the chance to gain considerable Pulsepoints. However, the card holder should actually have TWO Sony purchases on the horizon, since the Pulsepoints can only be redeemed against another Sony item. Also, Pulsepoints are only redeemable against items featured in the Pulsepoints brochure, so not every product might be on offer.

The Virgin card offers a lot more, but again, the points must be spent within the Virgin group. The discounts and offers are good for those users who would buy Virgin products anyway. The attractive rate of the Shopaholics card makes it a good choice for card holders who don’t pay off the balance at the end of the month.

The cash back cards, however, are the best credit card deal for users who will pay off the balance each month, and who use the card for all possible purchases.