Playing your credit cards to get something for nothing

Cashbacks, cut-price petrol and free flights can all be yours when you flash the plastic at the shops. Chiara Cavaglieri tells you how to benefit

Card providers are trying to lure customers with an increasing range of freebies and rewards EPA (EPA)

Credit card firms have long been in a war to win over customers by offering bigger and better rewards. Whether you want cashback on your shopping, cheaper petrol, or even air miles for that long-awaited summer holiday, a savvy spender with a decent credit rating really can get something for nothing.

Of all the credit cards available in the UK, a total of 39 per cent come with some form of reward – although only the most creditworthy customers are accepted. Providers are increasingly innovative with their rewards, so getting the most out of a card can be complicated.

"Santander 123 pays varying amounts depending where you spend, MBNA More Rewards comes with an Amex and Visa card on the same account so you can maximise your earning power, and Barclaycard pays enhanced cashback on your five biggest purchases each month," says Andrew Hagger of Moneycomms.

Many reward schemes are tied to specific retailers, so the first thing to consider is how and where you are most likely to use it. If you don't actually use your card in the right place, it could be a waste of time.

If you aren't happy to limit the reward to individual stores, a pure cashback card could be the best option. The American Express Platinum Cashback card is best buy, offering a generous 5 per cent for the first three months (on up to £2,000) and 1.25 per cent on spending thereafter. If you spend over £10,000 in a year you earn an unlimited 2.5 per cent cashback in your anniversary month. There is an annual fee of £25, but it still comes up trumps when compared to the classic credit card from Smile, which pays just 0.25 per cent cashback. Mr Hagger calculates that if you spent £25,000 over 12 months you would earn £62.50 with Smile and an impressive £312.50 with the Amex card at its 1.25 per cent.

Cashback and reward cards do have far higher APRs (in excess of 17 per cent) than other cards. This means the value of any rewards or points can easily be negated by the interest charges, and if you don't pay off the balance in full each month you'll get stung. Set up a direct debit payment to be safe, and if you aren't confident you can do this you generally need to avoid reward credit cards altogether.

Two new credit cards from Sainsbury's are something of an exception as they offer both low interest rates and decent reward schemes. The Sainsbury's Low Rate Nectar Credit Card and the Sainsbury's Low Rate Cashback Credit Card are both fee-free and charge just 7.8 per cent APR – the lowest standard rate on the market – for purchases and balance transfers.

These cards could work well if you wanted to pay off debt at your own pace, without having to transfer the balance from one provider to another and while still benefiting from the perks of being a loyal Sains- bury's customer.

The Cashback Credit Card offers 5 per cent cashback on purchases made in-store for the first three months, plus £5 cashback a month if you spend at least £250 in Sainsbury's and a further £250 elsewhere. Similarly, the Nectar Credit Card enables customers to collect up to five times the number of Nectar points they would normally earn on their Sainsbury's shopping for three months, and once the introductory offer ends the ongoing reward is worth 4 points per £1 spent, with additional Nectar points for using the card at Sainsbury's petrol stations.

"As far as rewards cards go, the Nectar Credit Card is one of the best out there. Getting the equivalent of 4 per cent cashback on fuel in Nectar points will be especially helpful to cash-strapped consumers," says Sarah Robb from uSwitch.com.

Ultimately every credit card offers something different, so take the time to decide which rewards suit you best. If you're a big online fan, you may want a card that gives money off purchases in your favourite store such as the Amazon Credit Card. This offers a £5 Amazon gift certificate straight off as well as three loyalty points for every £1 spent on the card in the first 90 days, falling to one loyalty point for every £1 spent, or two points per £1 spent at Amazon.

Understanding the best ways to boost any potential rewards is also crucial. The Tesco Clubcard Credit Card, for example, gives one Clubcard point for every £4 spent on it. One point is worth only 1p used in-store at Tesco, but worth up to 4p if redeemed for Tesco Clubcard Rewards vouchers instead. Similarly,the British Airways Amex card pays one Avios point for each £1 you spend. Each mile is worth a paltry 0.68p. But you do get a sign-up bonus of 9,000 Avios points when you spend £1,000 in the first three months, and if you're spending £20,000 over the year you get one free "companion ticket" when booking a flight.

All these card providers are determined to keep all their rewards for their own customers, but one company is finally bucking the trend. This week Barclaycard launched a new personalised shopping service, Bespoke Offers.

You don't need to be one of their customers to save on everyday purchases. Barclaycard is using its insight into shopping and sales trends to tailor deals to actual spending. They have a head start with their own customers, but in due course will have offers based on the location and shopping habits of other users. Retailers are happy to give discounts, as they can focus on people most likely to buy their goods.

"This is as close as you can get to one-stop shopping," says Valerie Soranno-Keating, CEO of Barclaycard. "And once we get to know you we can start making recommendations, cut through all the clutter and make it easy for you to find something you really want."