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Cashback is being cut back: which cards are safe?
As new laws take effect RBS and Capital One card holders are seeing their credit card cashback and rewards scaled back. Is your card safe?
Credit card providers are claiming that new regulations introduced this year by the EU will make credit cards more expensive and customers will see their card's reward and cashback offers cut.
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What's happening in brief:
Interchange fees (the fees Visa and MasterCard charge retailers for accepting card payment) have been capped by the EU who claim it will encourage competition and help business
Visa and MasterCard claim this will increase their costs which will be passed onto cardholders either as higher fees or reduced rewards
Capital One are cutting their credit card cashback scheme, citing the new fee caps as the reason why
RBS and Natwest are cutting their credit card rewards scheme, but are maintaining cashback
Several cards still offer cashback, but these tend to charge annual fees or only be available to cardholders who also have a current account with the bank
Credit cards that are cutting rewards
Two large UK credit card issuers have already announced they will be reducing the rewards they offer customers, as a consequence of the EU's new fee cap.
Capital One
The credit card company are cutting their 0.5% cashback they offer on credit card spending from 1 June 2015. The company explicitly blamed the new EU fee caps, announcing to their customers:
"Changes in our industry mean it is no longer sustainable for us to offer cashback on your card. This is because the fees we receive when you use your card are reducing."
RBS and NatWest
The commercial arms of banking giant RBS group are dropping their YourPoints credit card reward scheme by 1 July 2015, which gave one point for every £1 you spend on your credit card, which could be redeemed for cash or money-off vouchers.
However, RBS group is committed to maintaining its Cashback Plus scheme, more on this below.
Credit cards that still offer cashback
Many banks and card issuers are still offering cashback cards and have not announced any plans to cut their schemes.
It is worth noting that many of these cards charge fees in some capacity, or require you to have a bank account with the company. Which could explain why their not cutting their cashback rewards in the face of the fee caps.
This does mean you should be sure you will spend enough on the card to make it worthwhile, otherwise you might be better off with fee-free card that offers fewer rewards.
American Express
American Express are famous for their exclusive rewards schemes and have two cards offering 5% cashback in your first 3 months and 1.25% cashback thereafter. The card with a £25 annual fee lets you earn more cashback in return.
Santander
The Santander 123 credit card offers cashback of 1% at supermarkets, 2% at department stores and 3% on petrol, national rail and TFL purchases. However, it does come with a £36 annual fee (unless you already have a Santander 123 bank account).
RBS and NatWest
RBS group's cashback Plus scheme offers 1% cashback at partner retailers and all supermarkets, and 0.5% everywhere else. This applies whether you hold a card with NatWest or RBS.
Nationwide
Nationwide offer 0.5% cashback on all sterling purchases, and as an added perk don't charge foreign transaction fees when using their credit cards overseas. However, this card is only available to Nationwide existing customers.
Aqua
Aqua are offering cashback of 0.5% on all purchases as well as not charging any foreign transaction fees. This card is also available to those who have a history of bad credit.
What are interchange fees? How they affect you
Every time you make a credit card purchase the retailer is charged a fee by your card provider. It's only a small percentage of the value of the transaction, but it adds up. Currently interchange fees in the UK can be as high 2.5% and are paid by the retailer.
So this could mean on a transaction of £50 the retailer could receive £48.75, with the card provider taking £1.25. This is also why some retailers (and many hotels, airlines, ticket vendors and websites) will charge you for using your card to make a purchase.
As part of the new regulations, these fees will now be capped at 0.2% for debit cards and 0.3% for credit cards.
Will the fee caps leave you better off?
Interchange card fees have been costing EU retailers over €10 billion each year, according to European Commission figures.
The hope is these caps will save European retailers billions and add transparency to improve competition in the card payment provision market, which is currently dominated by Visa and MasterCard.
They also claim consumers will benefit from the transparency as they will know exactly how much of the cost of their purchase is going towards card fees.
Or worse off?
Credit card providers, namely Visa and MasterCard, are claiming that costs are going to have to be passed on to consumers.
A report commissioned by MasterCard estimates that in the UK “…the average debit card fees would increase by between £0.24 and £12.58, while average credit card fees would increase by between £12.24 and £16.81.”
This fee is not likely to be applied directly to card holders, but will more likely be reclaimed by reducing card rewards, as RBS and Capital One have down or by raising card interest rates.
Keep calm and shop around
The good news is the credit card and current account markets are highly competitive, forcing credit card companies and banks to offer good deals.
So, if you think you're not getting enough from your credit card or bank, shop around and you can probably find a better deal.
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Find a credit card that will give you back cash as you spend