How cashback works

Read the article

What is cashback?

Getting cashback on a purchase means you’re paid a percentage of the money you spent on it. For example, 5% cashback on a £300 television means you’ll get £15 back after buying it. It’s essentially a reward or incentive for spending your money in a certain way.

(Note that ‘cashback’ can also mean withdrawing cash from your bank account at a store’s cash register – much like you would at an ATM. This is a separate thing altogether and isn’t covered in this guide.)

You can get cashback on your purchases by using a cashback website or cashback card. Here’s how they work.

Cashback websites

Once you’ve signed up to a cashback site, you can use it to search for retailers. You’ll normally be shown what percentage of cashback you’ll get for shopping with them. If you click through to a retailer’s website and buy something, money will be added to your cashback account.

Wondering what’s in it for the cashback site? Essentially, you’re helping them make a profit. Retailers pay cashback sites for sending customers their way – and cashback sites give you a slice of that payment to keep you coming back.

Popular cashback sites include Quidco and TopCashBack, but there are loads to choose from. Just make sure you understand how and when you’ll receive cashback before you sign up.

What to look out for

Fees – many cashback sites let you sign up for free, but some charge for membership or premium features.

Link tracking – you can only earn cashback on purchases where you’ve clicked through to the retailer’s website via the cashback site. Otherwise the transaction can’t be traced back to the cashback site, meaning it won’t receive commission.

Cookies – browsing a retailer’s website before going back to it via a cashback site may mean your transaction isn’t tracked properly. This is because the retailer may have already stored cookies on your computer (i.e. information about your browsing history). You may need to clear your cookies first so that it’s clear you came through the cashback site.

Better deals – before you buy something through a cashback website, it’s worth comparing prices elsewhere. Otherwise, you may be missing out on a better deal.

Delayed payment – there can be a wait between earning cashback and seeing it in your bank account. Also, some cashback sites won’t pay you until you’ve earned a certain amount of cashback.

Making the most of cashback sites

Friend referrals – some cashback sites will reward you when you refer a friend to them. You’ll normally only get the reward once your friend starts spending through the site.

Big purchases – buying something big (like a holiday or mobile phone contract) through a cashback site can really boost your earnings.

Gift cards – you can usually withdraw cashback via a bank transfer or PayPal. But some cashback sites offer to increase the amount if you withdraw it as a gift card with one of their retailers.

Offline cashback – some sites let you earn cashback on in-store purchases. Check out Quidco’s ClickSnap app and TopCashback's OnCard scheme.

Cashback cards

Some credit cards give you cashback to encourage you to spend more on them. This helps the credit card provider make a profit, since they charge retailers a processing fee when you buy something.

You may also find current accounts that offer cashback for using your debit card. But these normally charge a monthly fee.

How you receive cashback can vary from card to card. For example, it may be used to pay off part of your credit card balance, or paid into a bank account so you can withdraw it. You may be able to convert cashback into other rewards, such as flight miles.

What to look out for

Charges – some providers charge fees or a high interest rate for the ability to earn cashback. Check your statement regularly to ensure the rewards outweigh the costs.

Debt – don’t be lured into spending more than you can afford just to get cashback. Try to pay off your credit card every month so you don’t build up debt or get charged interest.

Credit score – you may need a high credit score to get a cashback card. What’s more, taking out a credit card will temporarily lower your score.

Better deals – cashback shouldn’t be the only thing you consider when choosing a bank account or credit card. Calculate how much you’ll earn or pay in interest and fees too

Making the most of cashback cards

Choose a card that suits your spending – some cashback cards offer different rates of cashback for different types of purchases. So if you regularly spend a lot on travelling, it makes sense to get a card that rewards this type of purchase.

Consider cashback over interest – current accounts that offer cashback may have lower interest rates than others. But this can be to your advantage if you’re nearing your personal savings allowance (the limit for tax-free interest), since you won’t pay tax on cashback.

For more tips on how to save and budget better, head to Monzo Money Tips👇