Egg card offers cashback on sales online – but be wary of the rate

Internet bank Egg is to launch a new credit card offering borrowers cashback on purchases made online at more than 1,500 UK retailers. The Egg Visa card gives users free membership of online cashback discount store Quidco, which in turn offers money off items bought from some of the UK's big-name retailers, including Marks & Spencer, Holland & Barrett, Dell and iTunes.

Cashback, which through Quidco can be as high as 10 per cent of the purchase price, is then credited to the account of the customer's choosing each month. In addition, purchases made with the card have added protection, such as a refund if items ordered online are faulty or do not arrive. "The idea is to give consumers complete peace of mind when ordering online. Good retailers will offer protection already but we are adding to that," says Harald Schneider, head of Egg cards. "We have always been pioneers online, and retail spending is growing massively over the internet. This card keys into the zeitgeist that consumers want a better deal and are looking online for the best possible price in these thriftier times."

Borrowers with debt to transfer will be cheered by the fact that the Egg card comes with a 0 per cent balance transfer charge until August 2011. However, those who run up balances on their card need to be aware that the interest rate is 17.9 per cent. "This is a quite high rate; the truth is that any benefits you get from the online cashback will soon be eaten up if you leave money on the card for any length of time. Best advice is use the cashback but always pay back the balance each month," says Andrew Hagger from comparison service Moneynet.co.uk.

What's more, the rate on the new card is actually 1 per cent higher than the standard Egg Visa that it replaces.

"This little nasty was hidden away," says Michelle Slade from financial information provider Moneyfacts. "It seems that the 'freebies' are being at least part funded by a rate increase. Even the balance transfer deal is not all it's cracked up to be as customers can find longer-term deals on the market at present."

Ms Slade also points out that the Egg card has just a 2 per cent minimum monthly repayment. "Most cards typically ask for 2.25 per cent. Now this may not seem like a big deal, but if you have a large balance and just make the minimum repayment, under the Egg card's structure you will pay much more," she says. For example, spend £5,000 on the new Egg card and make only the minimum repayment and you will repay a total of £10,124 and take a staggering 45 years before being debt free. "No one is going to do this, but it is a warning to clear balances quickly," adds Ms Slade.

Nevertheless, regular online shoppers may be tempted by the free access to the Quidco site offered – normally costing £5 – and the fact that cashback is paid monthly into their account. "There are no vouchers or loyalty-card points that need redeeming. Our card structure means consumers can enjoy not just great savings on their shopping from top retailers, but also cashback," Mr Schneider says.

"If you like online shopping and you use the retailers that are on the Quidco site, then cashback is attractive," adds Mr Hagger. "The key, though, is not to spread your cashback and loyalty too thinly, and to use lots of different cards and sites. Focus on cards which give you cashback at the retailers that you are likely to use the most."