Get the most from cashback cards and loyalty schemes

- Get a better credit card
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Thanks to the credit crunch and subsequent collective tightening of British wallets, many credit card holders now take a dim view of using their plastic unless it's absolutely necessary.

However, with a little research and a lot of discipline, there are ways to make cards work in your favour.

In economically uncertain times, it's useful to know too that you can earn more from supermarket loyalty cards than you might expect. You're never going to get rich using them, but as Tesco say: every little helps.

So how do you go about getting worthwhile rewards?

Cashback credit cards

The thought of making money out of a credit provider seems at best unlikely. But if you play your cards right, it's easily done. The simplest way to do this is to take out a cashback credit card.

As the name suggests, these cards give you cash back when you use them for purchases. A typical card might offer 4 per cent cash back on spending for three months, thereafter reverting to 1 per cent.

The only catch is that you absolutely must pay off your balance in full each month, otherwise the deal is off. The same goes if you ever use the card to withdraw cash, or transfer a balance on to it.

As is the case with zero per cent transfer balances, card providers take a punt on human nature. They know a large number of people will fail to clear their balance each month or when a deal ends. At this point they revert to a high APR your interest payments will rocket.

The simplest way to ensure you pay off a cashback card each month is to set up a direct debit. When you fill out the form, tick the 'pay in full each month' option. Some banks cheekily fail to include this option. If this is the case, write 'pay off in full each month' on the form. Call the bank a month into the deal to ensure your wishes are being respected.

Different types of reward

Cashback cards reward consumers in different ways. Some offer varying percentages of cashback up to a certain spend. With others, the rewards kick in after a certain amount has been spent.

A good rate would be 4 per cent cashback up to £5,000 for three months. Anything above this is very good indeed.

Other cards may offer cashback on specific items such as petrol or supermarket shopping, or interest-free shopping in selected stores.

Keep an out for common additional benefits such as commission-free spending abroad and cheap travel insurance. One cut-price, multiple-trip travel insurance policy can save you a decent amount if you intend to go abroad more than once in a year.

The best cards offer a mixture of the high cashback incentives and a low APR for spending.

One trick is to add a partner as a second cardholder, thus doubling your cashback entitlement. Again, you have to make sure you pay off the balance in full each month.

Spread the money around

If you ever tire of funneling money from your credit card provider back into your bank account, you could put some of the money earned to good use.

Many charities have their own credit card. These cards make a donation to the charity when you open the card and then make a further donation each time the card is used. The more you use the card, the more the card provider donates to the charity.

For anyone who uses their card throughout the month and then pays the bill off in full at the end of the month, they could make donations to charity without it costing them a penny.

Bear in mind that charity credit cards don't offer market leading deals for balance transfers or introductory purchases. It's worth making sure the full deal that comes with the credit card suits your needs. Otherwise you could see yourself out of pocket.

Loyalty schemes

Loyalty (or reward) cards seem like a neat concept: give customers something back as a thank-you for shopping at a certain store.

The reality is somewhat different. Loyalty cards really only exist in order to increase sales by mining the data of cardholders in order to give them more of what they think they want.

Nevertheless, the deal seems to work for both sides. After Tesco introduced its Clubcard in 1995, by the following year shoppers spent 22 per cent more in Tesco, and 16 per cent less in rival Sainsbury's.

According to market researchers TNS, around 85 per cent of UK households have at least one loyalty card.

How to make the most of reward cards

Used in the most common way - to get cash off shopping bills - the rewards are fairly meagre. For example, ten thousand Nectar points equal £54.

But there are ways to maximise what you get for your 'loyalty'. Usually the biggest savings are made either by redeeming points for the goodies offered on the card's website or in its brochure. Decent savings can be made, for example, on family days out.

And, because of the interconnected nature of UK retail, shoppers can save money on deals offered by partners of the reward scheme. This could mean anything from discount life insurance and membership of A DVD rental club to money off a restaurant meal or a cut-price gym membership.

The key is to keep an eye on your reward scheme's website and for deals offered in-store, usually at the customer service desk or the till. Never redeem vouchers in store.

Bonus points can represent good value too. If you spend thousand bonus points you got when you bought (for example) a DVD player on something you were buying anyway, you are effectively getting a cut-price DVD player.

Given the expense involved family days out, reward cards can come up trumps. They frequently offer discount of up to half price on tickets to attractions such as Alton Towers - a significant saving when you consider tickets bought at the gate can cost £30 each. And that"s before the ice creams have been bought.

Discount versus extra points

Many stores now offer to turn points into extra points instead of discounts. This is a fairly transparent way of offering less for you at greater reward for the store. These rewards also ensure that you have to come back to spend the extra rewards. If you can, insist on a discount.

Some loyalty cards also offer customers credit cards. There are often thousands of free points on offer when you sign up for a card, providing you spend a certain amount in the first few months.

It's tempting. But like cashback cards, only go for it if you are certain you can pay off the credit card each month. Otherwise you will be hammered with a high APR.

The main loyalty schemes are Tesco Clubcard, Airmiles, Nectar and Boots Advantage. Here are the basics on each scheme.

Tesco Clubcard

Every £1 spent redeems two points and these can be redeemed for a vast array of items including holidays, days out, gifts and shopping discounts.

Claiming your points for items in the Clubcard brochure makes them at least twice as valuable as they would be if you used them to cut your shopping bill in Tesco.

Nectar Card

Nectar is run by a consortium including Sainsbury's, BP and Debenhams, among others. Points are worth 0.5p and can be redeemed for a range of days out, experiences, gifts and discounts at member stores. Points can also be used for DVD rental and in the scheme"s wine club.

Boots

The high street chemist's Advantage Card offers around 4 per cent discount when points are used in store - one of the best value cards around. It frequently offers treble points when you shop on specific days.

Airmiles

Airmiles is not to be confused with the frequent flyer scheme. Each mile is worth around 7p. You collect miles by shopping at or signing up with various outlets including John Lewis, eBay, BP and Southern Energy. Most of the rewards on offer revolve around cheap flights and other travel spending.