Great new cashback card - but watch the gimmicks

Barclaycard's new cashback card is innovative and interesting, but must be used with caution.

Barclaycard is particularly good at inventing new things that make your life easier whilst taking a greater proportion of your wealth in a stealthy way. So, you must approach its interesting innovations with caution! You can use its credit cards to your great benefit, but using them badly will cost you.

Its latest invention is a new cashback card.

Cashback on purchases

Here's the cashback that the new Barclaycard Cashback Card offers on purchases:

• 1% cashback on the first £2,000 of purchases each year.
• 0.5% on all purchases thereafter up to another £18,000 pa (so cashback is paid on £20,000 in total).
• Double cashback on contactless purchases of £10 or less (so 2% on first £2,000 and then 1%).

Cashback is paid once a year. Cashback is variable, meaning that Barclaycard can reduce or cancel cashback by giving you 30 days' notice. But one thing is almost certain: it will never increase the cashback for existing customers.

You won't earn cashback in any months where you breach contract. That means things like missing a payment. If you break the conditions in two consecutive statement periods, you'll lose all cashback for the year. (It'd be easy to forget to pay off that contactless purchase of a chocolate bar and bottled water!)

Furthermore, and very importantly, if you fail to clear your entire balance each month you'll pay so much interest that any gains from cashback will be wiped out.

Balance transfers - with cashback

The card offers a 0% balance-transfer deal and, a first for balance transfers, it comes with cashback too:

• 0% interest on transfers for 12 months with a 2.5% fee. Maximum £5,000 (subject to approval).
• £10 cashback on transfers of £4,000+ and £5 on £1,000 - £3,999.99.

Transfers must be made within 60 days of opening the account. You'll lose the 0% rate if you break conditions (missing a payment and so on). You'll lose cashback too, in the same way as described earlier.

In reality all this cashback does is slightly offset the 2.5% transfer fee. Without the cashback, the fee is £25 on a £1,000 transfer and £100 on a £4,000 transfer.

An important warning! You should never use this card - and indeed, most cards - for more than one purpose. If you use it for purchases and transfers for example, the small print will give you a mighty kick in the teeth.

More features

I drew short of titling this section 'More benefits', because the rest of this card's offering is mixed. Here's the best of the rest of the terms and conditions:

• Worldwide assistance is a relatively small benefit that some cards offer, but it may prove a comfort. You can read about it here.
• A free text alert service, which will notify you five days before a payment is due.

Other features offer limited benefits, especially considering we are already well protected from many eventualities under existing consumer law. Furthermore, many other cards offer some of these benefits as standard anyway. Briefly, these include: identity protection, fraud monitoring, purchase delivery protection, a small discount with Thomas Cook (not a great benefit as there are much cheaper alternatives than Thomas Cook), and emergency card replacement and cash advances.

Benefits that are far from beneficial

Next we come to the so-called 'benefits', which serve no purpose other than to confuse and be more costly than we think:

• 10% cashback on any interest paid.
• Cashback on cash withdrawals. (1% and 0.5%, as with purchases.)

With the cashback on interest paid, if you pay £100 in interest per year you'll end up paying £90 after getting £10 cashback. However, as you're paying a minimum of roughly 15% APR, that still equates to more than 13.5% APR: still an expensive interest rate.

With cash withdrawals, the cashback is wiped out through charges. You're charged a 2.5% fee instantly (minimum £2.50) plus interest from day one (i.e. you don't have a month interest free). At such an extraordinarily high interest rate (28% APR), you'll pay a lot more than you receive in cashback. Also, as I mentioned earlier, if you use your card for more than one purpose you'll be clobbered.

How does this card compare?

Much of the innovations on this card are gimmicky. Even so, it's good if used correctly, because most cards offer 0.5% cashback or less. This card suits low spenders best, up to around £4,500 per year.

The Barclaycard Cashback Card has just three big competitors that are currently available for new applications.

The American Express Platinum Cashback Card gives you 5% cashback for three months (up to £2,000 of spend, so £100 cashback) and between 0.5% and 1.25% thereafter, depending on how much you spend. It pays no cashback if total spending is less than £3,000 a year. In terms of cashback this is usually the best card for big spenders (e.g. roughly £10,000+ per annum) or for people making a large purchase within three months' time. The greatest downside is that Amex is not as widely accepted as VISA or MasterCard.

The Egg Money World Card pays you 1% up to £20,000 of spend (£200 cashback maximum) per year. However, it has a monthly fee of £1, which means the first £1,200 you spend each year is wiped out with fees. You have to spend more than £2,400 per year to make this card better value than a bog-standard 0.5% cashback card. This is better than the Barclaycard Cashback card once you spend roughly £4,500 or more per year, making this the best card for most people spending in the mid-range.

If your London transport costs are high then Barclaycard's OnePulse Card offering 5% cashback on Transport for London spend is good, although this is limited just till October next year and a maximum of £15 cashback per month.

Compare credit cards through lovemoney.com

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