Hi All

I am trying to get my head around the benefits of cash cards over purchase cards. Most of the cash cards on the table seem to offer a high introductory rate on spend for the first few months, then drop back to around 1% or so of spend.

The purchase cards do not give any money back, but seems that you get longer to clear your balance, say 12 months from opening an account. During that time, you could keep the money you have spent, although guess you have to make some minimum payments each month.

Is there some way of calculating the comparible benefits between a cashback card and a purchase card? Or is it all down to your spending patterns and credit limits?

Good site

Cheers

NewStu

Is there some sort of calcualtion

The question is whether you can earn more in interest over the 0% period than you are paid in cashback. The top-paying cashback card offers are 4%+, the longest 0% offers are 12-15 months, so these are much of a muchness for basic-rate taxpayers starting out.

Generally, the lower tax band you're in, the better 0% cards become; as you progress further into a 0% period a cashback card becomes more attractive. Don't forget to factor in minimum monthly payments (typically 2-3%) which reduce returns on a 0% card, and the interest-free period (up to six weeks depending on the timing of your purchase) on cashback cards.

To give an example, at the moment the tipping point for me is 6-8 weeks from the end of a 0% deal. I've calculated (roughly) that I get better returns from spending on my cashback card (average 0.65%) after this point.

Other considerations: with a cashback card you don't need a big credit limit whereas for 0% purchases you need a big limit to build up the balance over a number of months. (In general, having large amounts of unused credit available affects your ability to get deals elsewhere but there may be situations in which a large credit limit is advantageous, eg when asking another issuer to match the limit).

And don't forget many cashback cards pay out annually which means you have to keep the card open to qualify, whereas with a 0% purchases card you can put the money into an account which pays interest monthly.

With 0% purchases cards you are exposed to fluctuations in interest rates: if they go up your returns will increase but if they go down you may find you'd have been better off with a cashback card. The good news is, it's "free" money either way.

One final consideration: if you're going to be tempted to spend the pot you build up to clear the 0% card, and leave yourself short at the end, go down the cashback route.  

Thanks Manof Kent and all for the info.

Thionk onbalance I will go for the purchase card as can route all my household expenditure through that and save it until the end of the year.
I see what MoK is saying about the benefit of this approach producing declining returns as you get to near the end of the 0% period and that a cashback card may be better for the final few months. Will consider this, or see if can get another purchase card before then.

Thanks for the help, most informative.

NewStu

Son just got an invitation to have both an American Express and Sky card.  

The American Express is fee free for a year 12 months at 0% 3% fee. In the second year THERE IS A FEE OF £60 for having the card.
I dont think so.

I cant get a sky card anyway as we are cable, but there isobviously such a card if anyone has sky.12 months 0% 3 % BT fee.