Abbey’s cashback card set to become popular

Abbey has launched a new credit card which will give shoppers 5% cashback on their spending in supermarkets until 31 January 2008. This outstrips cashback offers on all other credit cards, and also comes with an offer of 0% on balance transfers for a year and 0% interest on purchases for three months.

Sounds like a great deal, but you need to look beyond the large print. The terms and conditions reveal that this is not quite as good as Abbey might like you to believe. The 5% cashback offer is limited to £1,000 worth of spending, so the most you could get back would be £50. Nevertheless, as the card can be used at most food supermarket outlets such as Sainsbury’s, Tesco, Waitrose and Co-op, it does give card holders an opportunity to make savings on their regular shopping. Better yet, the deal does not only apply to the new credit card – it is being applied to all existing Abbey cards, so many others will benefit from the deal. With an estimate of £190 per month for the average household’s monthly supermarket spending, many people will get close to getting the maximum payback.

Cashback cards do not suit all consumers. If you do not pay off your credit card balance in full every month, then a cashback card is not for you, because the interest you will end up paying will render any cash you get back as worthless – you’ll be paying more in interest than you’re getting back in cash. If you use a credit card to borrow money, you would be better off choosing a card with a lower interest rate.

Yes, the Abbey card comes with 0% interest on purchases for three months, but if you haven’t paid off your purchase debt by the end of that time, you will be paying interest at 15.9% APR. That would far outweigh the 5% cashback offer.

The other catch with the card is typical of many cards these days. The 0% interest on purchases plays alongside the 0% on balance transfers, but if you transfer a large debt to the card you should avoid making any purchases at all, because the any repayments you make go first to paying off the larger transferred balance, so you would still pay interest on the purchases unless you could clear the whole transferred balance first within a year.

Abbey says it will be offering more cashback deals on its cards. Previously Abbey outsourced its credit card business to MBNA, but now it deals with it in-house, since it has become part of Santander, the Spanish owners of Abbey.

Certainly Abbey’s offer of 5% cashback for supermarket spending will catch the eye of many consumers – we all have to get our groceries, after all. If Abbey extend cashback offers to other areas of regular spending such as petrol, then there is little doubt that they will build a reputation for having worthwhile cards.

Around one in ten credit cards offer a cashback facility, and mostly with competitive APRs, but it is more important that cashback credit card holders pay back their balance in full every month to get the full benefit of cashback.

Capital One offers a very competitive card with cashback, launched in June 2007. It pays 4% cashback on purchases for three months, and then 1% after that. The APR is 15.9%. The card doesn’t have any complications of tiered spending or limits on cashback that blur the picture on many cards. Simply, if you spend £2,000 in your first three months, you will get £80 back. For people who use a credit card for most purchases – and pay it off every month – this could represent a very good saving. It is also important to note that only people with an unimpaired credit history will be able to get the card – those with less than perfect histories will not get a card with such good terms.

The American Express Platinum credit card has a 3% cashback offer for three months, and then the rates are tiered: there is 0.5% on the first £3,500 spent in a year, then 1% up to £10,000, and 1.5% cashback on spending above £10,000 in the year.

Egg Money’s card offers a flat rate of 1% cashback with an annual cap of £200. You would have to spend £20,000 on the card to reap the full reward.

Comparatively, you could earn £350 cashback from the American Express card in the first year if you spent £20,000, and £233 in following years for the same spending. The same spending on the Capital One card would also get you back £350.

Barclaycard’s Platinum Cashback card is also aimed at supermarket shoppers, paying 2% on purchases at supermarkets and for petrol, up to £15 a month, and 0.5% on all other purchases.