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Why 0.2% cashback is the ‘new normal’ for Visa and Mastercard – and why travel cards are far better

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HSBC launched a new rewards credit card last month called, erm, the HSBC Rewards Credit Card.  This does not give travel rewards, but I wanted to highlight it because:

it shows, very clearly, where all cashback credit cards in the UK are heading, and

it shows how surprisingly generous many non-Amex travel rewards cards still are

What does the HSBC Rewards Credit Card offer?

Take a look at the HSBC website here.

What you have is a Mastercard which:

has a £25 sign-up bonus

has no annual fee

earn 1p cashback for every £5 spent

gives you a £25 bonus if you spend £10,000 per year

The representative APR is 21.9% variable.

You are getting 0.2% back on your spending.  In reality, you may get a lot less.  It depends if you receive 1p per £5 transaction or 1p per £5 on your total monthly bill.

If it is the former, a £3.99 purchase earns nothing.  If it is the latter, a £3.99 purchase will earn you 0.8p when aggregated with your other transactions.

If you spend exactly £10,000 on the card per year, your cashback increases to 0.45%.  This, admittedly, is not bad.  However, this card is NOT available to everyone.  You must hold a HSBC current account and have paid in at least £1,750 per month for the past six months.  For someone in PAYE, this requires a salary of £25,700.

HSBC Rewards credit card

How does this compare with other cards on the market?

Keep the 0.2% cashback figure in mind.

Not coincidentally, many other leading cards now have the same return:

Amazon halved the earning rate of its Platinum Mastercard on 29th April and now gives 0.5p of Amazon vouchers per £2 spent outside Amazon (ie 0.25%)

ASDA cut the rate on its Cashback Credit Card from 0.5% to 0.2% cashback on non-ASDA spend in 2018 (you receive ASDA vouchers, not actual cash)

The Marks & Spencer credit cards offer 1 M&S point for every £5 you spend outside M&S, with 500 points getting you a £5 M&S shopping voucher for a return of 0.2%

Some cards are even worse.  The Sainsbury’s Bank credit cards give 1 Nectar point, worth 0.5p, for every £5 you spend – a return of just 0.1%!

Some cashback cards still beat this, of course

The main outlier at the moment is the John Lewis Partnership Card.  This gives you 1 point for every £2 you spend outside John Lewis / Waitrose.  As 500 points gets you a £5 shopping voucher, this is a return of 0.5%.

Tandem Bank, the small challenger bank, offers 0.5% cashback and 0% foreign exchange fees on its Visa card.

In general, however, the market is moving towards giving you 0.2% in cashback or vouchers on ‘no annual fee’ Mastercard or Visa reward cards.

The reason for this, of course, that interchange fees have been capped at 0.3% on Mastercard and Visa credit cards following legal changes 18 months ago.  This dramatically cut – by 75%+ – the amount that credit card processors could charge retailers for accepting cards.

Virgin Atlantic Mastercard

How does this compare to free travel rewards cards?

What you can see from this is that the three free travel rewards Mastercard or Visa credit cards are still substantially better value than the main cashback cards. I am looking at Amazon, ASDA and Marks & Spencer, plus the new HSBC Rewards card. Even if you bring Tandem and John Lewis into the equation, two of three free travel cards do better.

You’ve got:

Virgin Atlantic Reward Mastercard 

This offers 0.75 Virgin Flying Club miles per £1 spent. If you can get 1p per mile by redeeming smartly, you are getting a 0.75% return on your spending.  Even if you get a little less than this, you are still head and shoulders above most of the cashback cards above.  Until 30th June, you will also receive a sign-up bonus of 12,000 Virgin Flying Club milesOur full review is here and you can apply hereRepresentative APR 22.9% variable.

IHG Rewards Club Mastercard 

This offers 1 IHG Rewards Club point per £1 spent.  These are generally worth around 0.4p when used for Holiday Inn / Crowne Plaza / InterContinental etc hotel rooms, and at peak dates you can do a lot better.  The card also gets you Gold status in IHG Rewards Club for as long as you hold it.  Our full review is here and you can apply hereRepresentative APR 18.9% variable.

HSBC Premier Mastercard  

This offers points which convert into 0.5 Avios, 0.5 Etihad Guest miles, 0.5 Asia Miles or 0.5 Singapore Airlines Krisflyer miles for every £1 you spent.  If you can get 1p per mile – and some of these schemes offer better value than Avios – then you are getting 0.5% back on your spending and potentially more.  Our full review is here.  Note that you need to be a HSBC Premier customer to get this card. Representative APR 18.9% variable.

We have only looked at free cards here because it is easier to compare the rewards.  There are also annual fee versions of the Virgin Atlantic, IHG and HSBC Premier cards as well as the Miles & More cards, but you would need to have a good idea of your annual Visa / Mastercard spending to calculate which works best.

We have ignored American Express cards entirely in this article due to their lack of universal acceptance, but the American Express Platinum Cashback cards are substantially more generous than their Visa / Mastercard rivals, as are the remaining American Express travel rewards cards.

In summary ….. the screws continue to be tightened on ‘no annual fee’ Visa and Mastercard rewards cards.  The good news is that the travel rewards sector, where Head for Points readers focus, still offers returns far above the average.

(Want to earn more miles and points from credit cards?  Click here to visit our dedicated airline and hotel travel credit cards page or use the ‘Credit Cards Update’ link in the menu bar at the top of the page.)

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  1. As a replacement for the Lloyds duo Avios I went with Amex gold + Santander All In One MC as the non-Amex back up

    Santander all in one MC has 0.5% cash back, no Forex and 0% purchases and balance transfers for 26 months. £36 annual fee.

  2. but the article doesn’t address WHY the travel credit cards are (currently) offering above average returns !

    is it because travel brands are prepared to subsidise the returns for getting their brand in front of you on a daily basis ?
    is it because card holders don’t actually cash in all their points ?
    is it because card holders cash in their points for much less than the 1p per point level ?
    is it because the companies just haven’t got around to slashing rewards yet ?
    or some other reason ?

    • lev441 says:

      Probably a mixture of all the above!

    • guesswho2000 says:

      All of the above and then some.
      Rewards points create an illusion of value, so people collect them, the majority (I suspect) seemingly blindly. Rewards programmes are also inherently confusing, and ‘easy’ rewards are of low value (such as BA’s part-pay with Avios).
      Some people collect points and, even with some understanding of airline programmes, will redeem for any saving because cash is king.
      There’ll be a percentage who let their points expire, too.

      I also suspect that existing contracts tie the issuer’s hands somewhat – they’re contracted to offer x points per £, and will also be buying a certain number of points likely at a discount. My theory behind the Hilton Barclaycard revolves around this – I suspect Barclaycard are contracted to keep the cards around for however long, and have committed to buying million of HH points from Hilton. They’ll keep the cards until they’ve exhausted them, then bye-bye. Or I might be completely wrong.

  3. hear hear, seems to be a lot of stigma on this site about Aqua, but it is a fantastic product!

  4. Sounds good doesn’t it. Unfortunately, got denied, no reason given, just a little line ‘we”ll be in touch to let you know why, meanwhile your credit rating has not been affected and this application will not be recorded.’ Cryptic…

  5. Andrew says:

    Because it’s an Aqua Card…

    Although they (and one of their competitors) have paid me compensation to apologise for inappropriately sending me direct marketing emails promoting “bad debt” cards on a number of occasions. One of the “joys” of LSOA targetted marketing failing to adapt to modern mixed social and home-owner housing developments.

    • They used to send me junk mail asking if I wanted a ‘bad debt’ Aqua card. And we have a house in SW3 🙂 You’d think, somewhere, the software would say ‘you really are wasting £1 sending this out’ ….

      • Nick_C says:

        Have all the poor people been evicted from SW3 then Rob?

        Its nearly 20 years since I worked for RBKC, but one of the fascinating things about the Royal Borough was the way the rich and poor lived cheek by jowel.

        All of Central London used to be like that of course in my parents’ time.

        • The house my son wants us to buy round the corner is on at £18m … think he’ll be disappointed.

    • Out of interest, why would you be due compensation for simply receiving a junk email?

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