Reward Cards
In order to compete for customers, more and more credit card providers are offering cardholders a reward scheme. These schemes offer loyalty benefits the more that you spend on your card. There are a number of types of reward card, but most fall under one of the following headings: Cashback Credit Cards or Loyalty Point Cards.
Cashback Credit Cards
Cashback credit cards are popular reward cards. When you make a purchase on your credit card, you receive a small amount (typically one or two percent) of the payment back at the end of the year. If you spend a lot of money on your credit card, even a small percentage is worthwhile and could add up to hundreds of pounds cash back at the end of the year. Cash advances and balance transfers do not usually earn cashback rewards, and so you should avoid making these types of transactions on a cashback reward card.
Cashback credit cards often come with large interest rates and are therefore best suited to customers who can repay their full outstanding balance at the end of every month: otherwise, the cashback you receive will not cover the interest you are charged. It is important to realise the risks associated with a cashback card. If you are able to manage your money well, you can make the purchases you would otherwise have made and earn money back: you are essentially shopping at a discounted rate. If you set up a direct debit to pay your full outstanding balance each month, you can ensure that you do not incur interest charges and late payment charges, because you will automatically pay off your full balance each month. However, if you find it difficult to manage your money or hard to resist spending to increase your cashback entitlement, you may wish to consider a different type of credit card.
Loyalty Point Credit Cards
Loyalty point card schemes are very common, and work in much the same way as store cards. You earn points each time you spend money on your credit card, perhaps one point for each ten pounds spent. The loyalty points that you accrue will either be store points or airline flight points. Store points can be used to make purchases in certain stores or online shops, or redeemed for free items. Supermarket credit cards will usually enable you to earn points on your food shopping and then use these points to discount food that you buy in the future. Airline flight points can be collected and redeemed as a discount on air travel. You may find however that you will not earn enough points to qualify for reduced flights unless you use your credit card on a frequent basis.
Most loyalty point schemes are similar. You will typically accumulate one point for each pound you spend on your credit card, although offers vary. Some purchases will attract bonuses, or double points. You may be informed of promotional periods when you can earn two points for every pound spent, or ten extra points if you purchase certain items. You should receive details of exclusive cardholder offers throughout the year.
Reward credit cards are ideal if you repay the full outstanding balance each month, because you do not incur interest charges. However, if you find that you are rarely able to pay off the full balance, you should consider other types of credit cards, which have offers better suited to your needs.
