Taking advantage of cash-back companies can be a lucrative way of earning a bit of money from making purchases. There are three main ways for getting cash-back with shopping and when used correctly, they can be helpful. It’s important to understand the different ways cash-back initiatives work however. There can be financial consequences if they are not used correctly, read on for our money saving tip on how to use cash-back companies.

What is cash-back?

Aside asking for cash out of your bank account when paying at a till, cash-back can also mean three other schemes.

Cash-back at the till

This is a debit card transaction where a cardholder receives a small amount of cash back to their card for making purchases. Some banks call this a reward scheme and give a percentage of cash or discounts on products to their debit cardholders who sign up.

Credit card cash-back

This works as an incentive for credit cardholders to make purchases on their credit card often. The more purchases you make with your credit card, the more cash-back you can receive. Some cards offer cash straight back into your account, discounts at selected stores or both. These credit cards will usually have an annual fee and work like a normal credit card so the cardholder needs to be sure they can pay back the amount each month. Otherwise, the fees could far outweigh any benefit you may get from the cash-back. Which has some more in-depth guidance on credit card cash-back schemes.

Cash-back websites and apps

Cash-back websites and apps work by referring customers to websites and then rewarding them for making a purchase. This works through tracking the link from one website to another. On a cash-back website, you click on the button to an online retailer. Then when you arrive on that website, tracking technology known as ‘cookies’ knows you’ve been referred by the cash-back site and tracks your purchase.

The cash-back rewards from websites are not usually immediate. At the very least, the retailers won’t release data about the transactions to the cash-back companies, until after the returns deadline has passed.

For some purchases such as hotel stays and flights, the rewards won’t be granted until after the holiday has happened.

What are the benefits of using cash-back companies?

The main benefit of using any form of cash-back scheme is the financial rewards gained. Here are two examples:

Beth’s debit account gives them cash-back when they make certain purchases. This means they carefully choose what shops to go to so they can make the most of the cash-back scheme. As they live nearby those particular shops, they aren’t going out of their way to visit those shops. Over two or three months, Beth gets £15 in cash-back straight into their bank account.

Lukas and Sarath want return flights from London to Toronto, Canada. Booking through a referral from a cash-back site, gives this couple 2% cash-back on flights that are £500 each. For a total of £1000 for the flights, this means they would get £20 cash-back when they return home.

The cash-back amounts can vary but as we all know, a little can go a long way. Adding the cash-back into your savings could make a big difference with interest earned. Especially if you use the cash-back sites regularly.

What are the downsides to using cash-back companies?

There are some drawbacks to using cash-back schemes that you should be wary of. Firstly, the retailers that the cash-back sites refer you to may not be the cheapest or best.

In the example above, Lukas and Sarath bought flights for £1000 and got £20 cash-back. If they shopped around, another website would have found them similar flights for £470 each. This would have saved them £60.

It is important not to only choose cash-back companies to make your purchases with. Always look around for the best deal.

Another drawback is that the cash isn’t always guaranteed. Cash-back schemes and retailers do not promise cash-back 100% of the time so they cannot be relied on.

Cash-back credit cards and rewards programmes may have higher APRs (higher percentage rates) or have a cap on how much can be earned, so it is important to read the terms and conditions before agreeing.

Overall, making use of cash-back schemes, whether through your bank, shops or websites, can be a helpful and easy way to earn some extra cash. Consumers need to be vigilant and sensible though, as relying on cash-back schemes, or not using them responsibly, can result in financial problems. Our money saving tip on how to use cash-back companies is part of our commitment to providing advice. If you need specific financial advice, please don’t hesitate to contact our team today.