Cashback is back as rates hit five per cent

Cashback is making a comeback as credit card firms battle for customer loyalty with one in 10 cards now offering schemes. But new research from MoneyExpert.com shows that the average rate of cashback offered is just 0.72%.

Last week Abbey launched a cashback credit card with a market-leading rate of five per cent but only on the first £1,000 of purchases made in the major supermarkets. Other impressive deals include Capital One offering four per cent and American Express at three per cent.

MomeyExpert.com believes the new offers will encourage more customers to look for cashback cards.

While rates of three to five per cent may sound attractive, the standard level of cashback paid to customers is just 0.72% and that drops to 0.5% when you remove the Abbey card from the average. That means someone spending £2,000 on their credit card in a year can expect to earn just £14.40 on average in cashback.

Sean Gardner, Chief Executive of MoneyExpert.com, said: “Cashback sounds great and is a genuine way for credit card companies to reward loyal customers.

“However average rates of 0.72 per cent are pretty feeble and anyone who picks a card purely for its cashback is making a mistake if they don’t pay off their balance every month. It’s almost certain the cashback you get will be wiped out by the interest you pay.”

“A number of the cashback deals available offer great value, but generally speaking this only lasts a couple of months after which customers may be left with cards that are uncompetitive in terms of purchase APRs and balance transfer fees.”

“Credit card users looking for perks need to think about whether they might be better served by a card which offers travel insurance, air miles or incentives on shopping.”

Many cashback cards have standard or below average APRs on purchases, with the overall average coming in at 17.7%.

Some of the cards with the best cashback rates also limit the amount of time in which you can take advantage of the offer. The Abbey deal lasts until the 31st January 2008 while, the Capital One World MasterCard four per cent offer lasts for three months before dropping to one per cent thereafter while the American Express three per cent deal last for three months before falling to rates between 0.5% and 1.5% depending on how much you spend on the card.