Banks cut credit card cashback deals

A string of banks and building societies have cut the amount of cashback they offer on credit card purchases.

Traditionally cashback on credit cards has been an attractive option for people who pay off their bills in full each month. Customers taking this option can earn money, typically between one and two per cent, on every purchase they make. A percentage of this spending is then returned to them on either a monthly or yearly basis.

But Moneyfacts, which monitors the credit card products available in the UK, has today revealed that over the last year more than a dozen credit card providers have cut the amount of cashback they offer customers.

"In recent months it has become more apparent that providers are feeling the pinch, not just from the cashback rates they offer but also the interest free deals," said Samantha Owens of Moneyfacts.

But these cutbacks have come at a time when cashback is the subject of a massive marketing campaign by Halifax, which recently launched the UK's first ever cashback debit card.

However, while trumpeting the benefits of cashback on its current account, Halifax was among the credit card providers to lower the levels of cashback it offered.

According to Moneyfacts, in July last year Halifax halved the amount of cashback it offered on its Halifax One Visa to just 0.25 per cent.

Halifax explained to MyFinances that the decision to introduce a cashback current account and to cut the amount of benefit on its credit card were not linked.

Jason Clarke, senior media relations officer at Halifax, said: "In credit cards, that's the way the market is going . . . the way the cards are being used mean that [the old level of cashback] is no longer feasible.

"It was not a case of moving from one to the other, they were very separate decisions and not linked."

Halifax explained that its current account is aimed at people with current accounts with one of the traditional "Big Four" providers.

The £1,000 a month minimum requirement meant over 70 per cent of households could apply, Mr Clarke said, and the account targeted people who traditionally had low current account balances and so could not benefit from the interest-rate paying current accounts.

"The Halifax moneyback current account is aimed at people who have been missed by the battle for higher current account interest rates."

But this did not mean that the bank was giving up on cashback on credit cards: "There will always be a market for some form of cashback," he added.

However, in the midst of the cutbacks in credit card cashback some companies are bucking the trend.

Earlier this year Morgan Stanley introduced a short-term offer of double cashback, paying two per cent on the first £2,000 spent on the card, and one per cent thereafter.

But the value of all these "added extras" has been called into question.

Sheila Macdonald, chief operating officer at The Co-operative Bank, said: "It is obvious that the days of these unsustainable offers are numbered and that in the future credit card companies will have to offer transparent, competitively priced deals with one, low rate for all transactions."

Abbey, which according to Moneyfacts offers the best cashback deal currently available, disagreed, saying its cashback deal was about offering customers choice.

"We offer four different cards," Hannah Chance told MyFinances, adding: "Credit cards are about horses for courses."

And a good deal on its cashback card was part of this choice, she explained.

While she agreed that the Halifax moneyback account was a "very creative product", Ms Chance added: "We would argue customers are better off with a high balance interest rate [on their current account] and a cashback credit card."

Under this system, customers can benefit from a similar level of cashback to that offered by Halifax's current account, but also benefit from interest on their current account balance.