How cashback works

Read the article

Getting paid for spending money? It sounds too good to be true. But simply put, that's how cashback works.

Getting cashback on a purchase means you can get back a percentage of the money you spent on it. 5% cashback on a £300 TV means you’ll get £15 back after buying it.

But who's actually giving you this free money? And why are they being so generous?

It's important to remember that cashback is essentially designed to get you to spend. (As if that ad on Instagram or that last email from ASOS weren't tempting enough!). Retailers, card companies and banks offer cashback to encourage you to shop or use your cards more. But if you use it right, it could help you save money.

You can get cashback on your purchases by using a cashback website, a cashback card, and some current accounts actually offer cashback as well.

And if you use Monzo in London, you can connect a cashback app called Tail to your account to get cashback at certain retailers!

How to use cashback sites

Once you’ve signed up to a cashback site, you can use it to search for retailers. You can usually see what percentage of cashback you’ll get for shopping with them. If you click through to a retailer’s website and buy something, they'll add the money 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 get cashback before you sign up.

What to look out for

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

Link tracking – you can usually only earn cashback when you’ve clicked through to shop from the cashback site. Otherwise they can't trace the transaction back to the cashback site and they won't get their commission.

Cookies – if you browse a retailer’s website, then go back to it through a cashback site, they might not be able to track your transaction 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 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.

Tips to make the most of cashback sites

Referring a friend – 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.

How to use 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 might also find current accounts that offer cashback for using your debit card. But these normally charge a monthly fee.

How you get cashback can vary from card to card. For example, the company might use it to pay off part of your credit card balance, or pay into a bank account so you can withdraw it. You may even be able to convert cashback into other rewards, like 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

Tips to make 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 spending.

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.

How to get cashback through Monzo

If you use Monzo in London, you can connect your account to a cashback app called Tail. It lets you get cashback when you spend at certain places, like Bird, Mother Clucker and Notes.

They'll pay any cashback you earn into your Monzo account at the end of each week.