In the days before 0% credit cards became the advertisers dream the main marketing tool for credit cards were the cash back and reward schemes on purchases. The card would either reward points or cash at a different rate on all regular purchases made. These points could then be redeemed on products offered by the credit card company. Alternatively, if the reward was cash then this would be earnt at a fixed percentage and paid periodically.
The headlines for these kinds of deal are always more attractive than the reality. The rate of cash repaid rarely gets above 0.5% or 1.0% and if it does there are usually conditions or limits applied. The benefit to the credit card company of course is that the consumer is spending on there card and the likelihood is that the interest charged on any purchase will far outweigh the cash back paid by the credit card company.
Also, the points or cash are not awarded for everything. Cash advances and interest charges do not fall within the schemes parameters. Also, there may be other conditions that apply such as an upper ceiling on the scheme. So if the cardholder spends above that ceiling then no points or cash are earnt for the purchases above that limit.
Whether a cash back scheme is better than a reward scheme is debatable. You may detect from the tone of this article that we are not particular in favour of either. However, as always we should stress that this is just an opinion and we would not wish to deter people from looking into such a card or even applying for one. Indeed for those people that are lucky enough to pay off there balance every month it makes sense to have a card that at least rewards the purchases in some way.
The catch with cash back credit cards is that there is an incentive there to spend more on your card. This is fine if it is avoidable and you can pay off your balance each month. However, if this is not the case then it may make sense to look at some of the other styles of cards with 0% interest periods and low standard APRs.