Credit Card Cashback

Remember that the only reason credit card issuers can offer you cashback rewards is that they themselves charge the retailers a percentage of each transaction.

Depending on the type of store and the goods sold, this can be up to 7% of the purchase price. The most generous cashback credit card provider, American Express, is also the one which charges the highest transaction fees to the merchants.

If you are shopping at your local supermarket or any other chain-store, you are probably unlikely to be concerned about how your choice of payment method affects the retailer's profit margins. Due to their size, they also pay much lower transaction fees than small businesses - you will probably have seen all those notices in stores telling you how 2.5 % of the transaction fee goes towards their credit card processing company.

For small businesses, credit card fees can be much more of an issue, especially if they are operating on very tight margins. There are some independent shops where it is still possible to haggle for a better deal. In these circumstances, you are likely to get a much better deal by offering to pay with cash, rather than with your credit card. You may also find that a local restaurant welcomes your custom a little bit more if you settle your bill in cash each time, instead of paying with a credit card. Small businesses generally prefer cash, as the payment is instant, whereas credit card bills can take much longer to settle. Many retailers will also prefer debit cards such as Switch/Maestro and Visa Delta, as the processing fees to the merchant can be substantially lower.

You may feel that you are not in the marketplace to increase the profit margins for your local small businesses. That may well be true, but you may also find yourself occasionally getting a much better deal by a keeping your credit card in your wallet and using cash instead.

For further tips on how you may be able to save money when purchasing goods and servcies, rather than just using your cashback credit card and earning a small rebate of perhaps no more than 1%, please take a look at our advice article "Earn 1%, or Save 10%".