If you're planning to do some serious spending this Christmas, you could earn some serious cash if you use one of these two credit cards.
I believe credit cards serve two great purposes. The first is to help you save money, and for those who have spent a little bit more than they should have in the past, 0% balance transfer credit cards can really help to get your finances back in order.
The second is to help you make money. You can do this by taking out a cashback credit card which will give you back a percentage of your spend every time you use it. In my opinion, cashback credit cards are a no-brainer if you pay off your balance in full each month, and effectively give you money for free.
However, according to American Express, despite the fact that we Brits love our plastic fantastic, more than half of all credit card holders (51%) do not own a reward card. With many of us looking to cut back on Christmas spending this year, it couldn't be a better time to get a card which gives you cash for spending.
First things first
It's important to remember that you should only consider getting a cashback or reward card if you pay off your balance in full each month. If you don't, the interest you'll be charged will far outweigh any rewards you'll receive.
In addition, the cashback credit card market has shrunk since the start of the year, although there's still some good deals if you know where to look. Currently, the two best cashback credit cards are:
1. the American Express Platinum Cashback credit card
2. the Egg Money MasterCard.
What's the difference?
The American Express Platinum Cashback credit card comes with an introductory rate of 5% cashback for the first three months (up to a maximum spend of £4,000 - so you can get a maximum of £200 cashback).
After that, you'll get 0.5% on up to £3,500 of annual spend, 1% on amounts from £3,501 to £10,000, and 1.5% cashback on amounts above that.
So as you can see, when the bonus period expires, the Amex card becomes much less competitive.
For those who prefer to keep things simple, the Egg Money MasterCard offers a flat rate of 1% cashback throughout the year, every year.
This is all very confusing -- so which card is better in the long run? Here's how the two cards compare over one year depending on your average monthly spend:
Monthly Spend | Egg Money cashback (over one year) | American Express cashback excluding bonus | |
|---|---|---|---|
£100 | £12 | £19.50 | n/a |
£200 | £24 | £39 | £12 |
£300 | £36 | £59 | £18.50 |
£400 | £48 | £84.50 | £30.50 |
£500 | £60 | £110 | £42.50 |
£600 | £72 | £135.50 | £54.50 |
As you can see from the table, the credit card which gives you the best returns depends not only on how much you spend each month, but when you spend it.
If you take into account bonus rewards, during the first year the American Express Platinum Cashback credit card wins hands-down, with more cashback earned than the Egg Money card on all amounts listed.
However, from the second year and beyond, the Egg card overtakes the Amex as the better deal. You could think of the two as the hare and tortoise of credit cards, and if you're not a big spender, the Egg card will proves better in the long run (although average cashback values over two years still leaves the Amex in top spot).
Number crunching
Of course, these figures assume that you'll always spend the same amount each month over the year, so there are a couple of extra pointers worth highlighting.
Firstly, Amex won't pay you anything unless you accrue at least £12 cashback each year. This means that after the first 12 months, you'll need an annual spend of at least £2,400 in order to get any cashback at all - worth bearing in mind.
Also regarding the American Express Platinum cashback card, obviously the more you spend during the first three months, the more cashback you'll accrue in total. So if you've got a big purchase in mind and have the means to pay it off in one go - why not slap it on your cashback credit card and earn some well- deserved cashback in the process?
It's important to remember that cashback credit cards are designed to reward you for everyday spending, not tempt into spending more than you can actually afford.
Having said this, spend wisely, and cashback credit cards can be a real way to pocket some extra cash for free - and something I feel every smart shopper should have in their wallet.
More: Why Credit Card Spending Is Foolish | Credit Cards For All Weathers | Compare Cards Now