Amex cuts the rewards on its cashback cards – a sign of things to come?

American Express relaunched its two Platinum cashback cards yesterday with reduced rewards.

Whilst this is not strictly relevant for Head for Points, because the cards do not give miles or points, it is an interesting indication of how Amex is thinking.  This is because these cards are immune to the EU cap on interchange fees.  Whilst there is some dispute over whether the BA card is immune – as it is co-branded – the cashback cards are definitely OK.

Despite this, Amex is still trimming the benefits.  Why is it doing this?  Possible options are:

to make up for losses on other cards which are subject to the interchange fee cap, or

because the card market is now less competitive with MasterCard and Visa issuers restricted in what they can pay out in rewards once existing contracts expire

That said, the cards are still pretty good as I will outline below.

Before going on I am, as usual, obliged to tell you that the Platinum Cashback credit card has a representative APR of 28.2% variable, including the £25 fee, based on a notional £1,200 credit limit.  The interest rate on purchases is 22.9% variable.  The Platinum Cashback Everyday credit card has a representative APR of 22.9%.

What is the difference between the Amex Platinum Cashback and Cashback Everyday cards?

Basically, the annual fee and the cashback tiers.  The Platinum Cashback card comes with a £25 annual fee.  The Platinum Cashback Everyday card does not.

Following the changes yesterday, the £25 Platinum Cashback card pays you cashback at the following rates:

• 5% cashback on all your spending in the first three months, up to £2,500 of purchases
• 1% back if you spend under £10,000 from month 4 to month 12 (and annually thereafter)
• 1.25% back on your spend over £10,000 from month 4 to month 12 (and annually thereafter)

This is a drop on the old structure which was:

• 5% cashback on all your spending in the first three months, up to £2,500 of purchases
• 2.5% cashback, uncapped, in your ‘card anniversary month’ if you spent over £10,001 in the previous year
• 1.25% on all spending

Ignoring the sign-up bonus, someone spending £800 per month on the card would now get an annual return of £71 (1% of £9600 – £25 card fee) compared with £95 (1.25% of £9600 – £25 card fee).

The free Platinum Cashback Everyday card has a different tiered system:

• 5% cashback on all your spending in the first three months, up to £2,000 of purchases

After the first three months, you will earn:

• 0.5% on the first £5,000 of spend (but you get nothing if you spend under £3,000)
• 1% back on your spend over £5,000

The old structure looked like this:

• 5% cashback on all your spending in the first three months, up to £2,000 of purchases

After the first three months, you would earn:

• 0.5% on the first £3,500 of spend (but you get nothing if you spend under £3,000)
• 1% back on your spend between £3,500 and £7,500
• 1.25% back on your spend above £7,500

Cashback is paid in a lump sum at the end of each card year.

Ignoring the sign-up bonus, someone spending £800 per month on the Platinum Cashback Everyday card would see their return drop from £83.75 to £71.

An unintended consequence …..

I’m not sure that American Express has done their maths properly here.

Under the old reward structure, and ignoring the opening bonus which is only available in the first year, your break-even point for the £25 annual Platinum Cashback card was £3,350.

Anyone spending more than £3,350 would have been better off, even after paying the £25 fee, with Platinum Cashback rather than the free Platinum Cashback Everyday.

However, that has now changed.

The break-even point is now £10,000.  For everyone except the highest spenders, you are now better off with the free Platinum Cashback Everyday card.

For example:

spend £9,000 per year and you will receive £65 on the free Platinum Cashback Everyday and the same £65 on the Platinum Cashback card, adjusting for the fee

spend £11,000 per year and you will receive £85 on the free Platinum Cashback Everyday and £87.50 on the Platinum Cashback card, adjusting for the fee

I can’t believe that Amex intended this to happen.

Under the old structure, the break-even point was £3,350.  Why?  Well, £3,350 of spend on the Cashback card earned you (at 1.25%) £41.88 back.  £3,350 on the Cashback Everyday card got you £16.75 back.    After £3,350 of spend, your £25 fee had already been covered by the additional cashback earned.

For the majority of people, it now makes more sense to have the free Platinum Cashback Everyday card.

What is the sign-up bonus?

Both cards have the usual generous American Express sign-up bonuses:

The Amex Platinum Cashback card pays you 5% back on your spending in the first three months, to a maximum spend of £2,500 (so capped at £125 back).

The Amex Platinum Cashback Everyday card pays you 5% back on your spending in the first three months, to a maximum spend of £2,000 (so capped at £100 back).

However, unless you are planning on spending over £10,000 between month 4 and month 12, I would not necessarily be tempted by the extra £25 as the free card is better long term.

What more should I know?

You do not receive your cashback month by month.  Instead, it is paid onto your Amex statement at the end of each card year.

However, this does not mean that it is more difficult to cancel the Cashback card with the £25 fee.  This is because Amex will refund your fee, pro-rata, when you cancel.  If you feel like dumping the card at any point, wait until the start of your next card year for the cashback from the previous year to arrive.  You can then cancel, and should get back at least £23 of your £25 fee as a pro-rata refund.  If you have not used the card since your renewal date, you should get the full fee back.

American Express no longer has a minimum income requirement for its cards.

That is a far longer analysis than I planned to write!  However, the original point of the article – that Amex appears happy to cut benefits on cards which are not subject to the interchange fee cap – is worth noting.

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