What a cashback card actually earns you across your real spending, after the fee.
Cashback cards rarely pay one flat rate. There is usually a headline rate on a couple of categories — travel, supermarkets, fuel — and a much thinner one on everything else. Put your own spending against the card's own rates and you get the number that matters, rather than the one on the advert.
Your spending and the card's rates
#CategorySpend / moRate %
£162.00
Cashback a year, after any fee
Total spend—
Cashback a month—
Cashback a year—
Annual fee—
Net after fee—
Effective rate across all spend—
Spend needed to cover the fee—
Where the cashback comes from
Category
Spend / mo
Rate
Cashback / yr
Share
How it works
Each category earns at its own rate, and the total is simply the sum:
monthly cashback = Σ (spend × rate ÷ 100)
Multiply by twelve for the year, take off the annual fee, and what is left is the number worth comparing between cards:
net = (monthly cashback × 12) − annual fee
The effective rate is the one figure that cuts through the marketing. It is your total cashback divided by your total spend, so a card advertising 5% on travel and 0.5% on everything else will show its true colours the moment your actual spending goes in. If most of your money goes on things earning the low rate, the headline number is close to irrelevant.
Where there is a fee, the break-even spend is what you would need to put through the card, at the same blend of rates, before the cashback covers the fee:
break-even = annual fee ÷ (effective rate ÷ 100)
Worked example
Say you spend £400 a month at supermarkets, £120 on fuel, £150 on travel and flights, £100 dining out and £500 on everything else. The card pays 1% at supermarkets, 1% on fuel, 3% on travel, 2% on dining and 0.5% on the rest.
£4.00 + £1.20 + £4.50 + £2.00 + £2.50 = £14.20 a month, or £170.40 a year, against £1,270 a month of spending. That is an effective rate of 1.118% — nowhere near the 3% on the front of the leaflet, because travel is only 12% of the spending.
Add a £50 annual fee and the net drops to £120.40. It still pays, but you would need to be spending about £373 a month at that same blend of rates just to break even, which is worth knowing before signing up.
Things that quietly reduce what you get
Caps. Many cards limit the amount of cashback earned in a month or a year, or cap the spend that earns the boosted rate. A card paying 5% on the first £2,000 spent is a very different proposition to one paying 5% on everything.
Introductory rates. Headline rates are often promotional for the first three months, dropping sharply afterwards. Model the ongoing rate here, not the intro one, or you will overestimate the year.
Excluded transactions. Cash withdrawals, balance transfers, gambling, foreign currency, council tax, and often anything paid to HMRC typically earn nothing. Some cards exclude utilities and insurance too.
Minimum spend. Some cards pay nothing at all below a monthly threshold.
And the big one: interest wipes out cashback instantly. At a typical 24% APR, carrying a £500 balance for a year costs roughly £120 in interest, which is most of a year's cashback on the example above. Cashback is only worth having if you clear the balance in full every month. If you do not, the rate on the card matters far more than the cashback on it.
Frequently asked questions
How do I work out cashback across different categories?
Multiply each category's spend by its own rate, then add them together. £400 at 1% is £4, £150 at 3% is £4.50, and so on. Add a row above for each rate the card offers, put your own monthly spend against it, and the calculator does the rest — including the effective rate across everything.
What is the effective cashback rate?
Your total cashback divided by your total spend, expressed as a percentage. It is the honest version of the headline rate. A card advertising 3% on travel might deliver barely 1% overall if travel is a small slice of your spending, and comparing effective rates is the only fair way to put two cards side by side.
Is a cashback card with an annual fee worth it?
Only if your spending is high enough. Divide the fee by your effective rate to get the break-even spend — the calculator shows this whenever you enter a fee. Below that figure the fee costs more than the cashback returns and a free card is better; above it, the fee-paying card usually wins because the rates are higher.
Does cashback count as taxable income in the UK?
Generally no. HMRC treats cashback on your own personal spending as a discount on the purchase rather than income, so it is not taxable. Cashback earned for introducing business, or on spending put through a business, can be treated differently. If you are in any doubt about a business arrangement, take proper advice.
Do caps and intro rates change the answer much?
Often dramatically. A card paying 5% for three months and 0.5% afterwards averages barely above 1.6% in year one and 0.5% thereafter. Caps bite the same way — 5% on the first £2,000 of annual spend is worth £100 at most, however much you spend beyond it. Model the ongoing rate rather than the promotional one, and treat the result as the realistic case.
Is cashback still worth it if I carry a balance?
No. At a typical 24% APR, interest on a carried balance costs several times what any cashback rate returns — roughly £120 a year on a £500 balance, against maybe £15 of cashback on the same amount of spending. Cashback only makes sense on a card cleared in full each month by direct debit.