Why is it important to repay my spending in full when earning cash back?

Related FAQ's & Guides Q. When and how will I receive the cash back I've earned? A. Cash back credit cards vary their means of when and how they make the reward payment. Usually cash back will be paid to the cardholder as a credit to their account or sometimes as a personal cheque. Egg Credit Card: Is it still worth applying? While Egg has clearly lost points in the customer confidence ranks, they are still topping the best buy tables for 0% balance transfers. But is Egg still a bank we can trust in? Does your Reward Credit Card Live Up to its Name? If you've previously been tempted by the lure of point based reward schemes, is your reward credit card earning you a plentitude or a pittance? How do Cash Back Credit Cards Work? Cash back credit cards allow you to earn a percentage of what you spend back as a cash reward.

PRIMARILY because any interest charged - even on the lowest rate credit cards - will outweigh the financial gains of earning cash back.

By repaying your spending in full and on time, the 'interest free period' offered on all credit cards for purchases will mean that you won't be charged any interest for using your credit card - and more importantly, for earning cash back.

Effectively, repaying your spending in full will mean you'll be earning free money from using a cash back credit card.

How cash back works...
Cash back credit cards offer the cardholder a percentage of cash back for every pound that is spent on the card (excluding cash transactions).

The cash back levels can vary from one card issuer to another, but the percentage is generally fairly low - many offer 0.5% and some offer 1%. However, you will also find some that do offer higher levels of cash back [see American Express Platinum], and some that offer increased cash back with selected purchases or certain retailers [see Egg, Barclaycard Platinum Cashback].

Although cash back levels are generally low, for those that use their credit card a lot the rewards can soon start adding up.

However, one thing that you shouldn't do if you are trying to benefit from a cash back credit card is spread your repayments.

Why? Because any cash back benefits that you receive from your credit card spending will be dwarfed by the interest that you are charged by spreading the repayments on your balance.

If your main priority is to spread your repayments then you should look at a different credit card in order to gain maximum benefit, such as a 0% balance transfer or 0% purchase credit card - or for longer-term smaller revolving balances a low interest rate credit card.

Know your percentages...
The reason repaying your spending on a cash back credit card is so important is because the percentage of cash back earned - on any card offer - will always be much less than the percentage of interest rate charged for leaving a balance on your account.

Whilst leaving spending unpaid on your credit card won't stop you from earning cash back, it will outweigh any of the money-saving/making benefits of having a cash back credit card.

Make money back...
The whole point of a cash back credit card is to try and make money from your credit card spending - no matter how small the amounts.

And the only way that you can actually profit in some small way from a cash back credit card is to repay the balance in full at the end of each month, which means that you won't be charged any interest.

This means that you will be able to enjoy the convenience and flexibility of using your credit card, you can earn cash back each time you make a purchase on your card, and you won't have your rewards offset by interest charges.

Avoid the ATM
Another thing to bear in mind is that with a cash back credit card - as with other rewards based credit cards - you will not receive any cash back for cash transactions.

In fact, you will be charged a handling fee for this type of transaction and accessing or buying cash will rarely be included in the interest free period - so you'll have to pay interest from the date of transaction even if you clear your balance in full.

To gain maximum benefit from your cash back credit card you should use it on a regular basis, use it only for making purchases rather than making cash transactions, and repay the balance in full each month so that no interest or charges are applied.

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