Introductory cash back offers can be for a significant amount of money. However they are for a limited period and they are for new customers. They can be very effective if timed in the right way.
Cash back cards are cards which will pay back a percentage of the amount spent on the credit card back to the card holder. This percentage is usually between 0.25% and 1% of the amount spent on the card in any one month. The reason this is offered is that credit cards will charge a merchant fee to a shop or service provider who accepts their credit cards. This fee will usually be around 2%. To encourage card holders to use their credit cards more and so be enabling the card issuer to charge the merchant fee to the shop, particularly those users who did not like owing money on a credit card, the credit cards would offer some of the money back to the card users.
Introductory offers are offers where the credit card company usually makes a loss on the offer. So for example the credit card company may offer a 0% interest rate on balance transfers for the first six months on the card. There is no possibility that they can do anything other than lose money on the balance transfer itself for those six months. However there are three ways in which they can make money. The first is by starting to charge after the first six months are up, the second is through charging an annual fee and the final way is to charge interest on any balance that is obtained through spending on the card (which is usually relieved last by repayments and so lasts longer).
In the same way the introductory cash back offers will initially lose money in order to attract the customer. So they will offer an enhanced cash back percentage, in some cases of up to 5%, for a strictly limited time – usually about three months. The idea is that this can be cheaper than marketing the card and that the money will be made back from the card user over the lifetime of the card.
To take advantage of these cards timing is crucial. If there is a particularly expensive event that is coming up then the idea should be to apply for the card just before this spending event happens. This event can be a wedding, moving house or Christmas. In this way the maximum advantage of the high cash back offer can be taken.
