Cashback is usually paid as a statement credit to your credit card account (that is, the ‘cash’ goes towards paying off your credit card balance). Some providers, however, might pay cash back into your linked transaction account.

If you frequently spend on a credit card and a cashback credit card offers are potentially appealing to you, there are a number of important things to keep in mind before signing up for one. While you may find a credit card that offers cashback, it is important to find out exactly what interest rate applies and what annual fees are charged, to make sure that the cost of the card does not outweigh any potential benefits.

Before taking out a cashback credit card, it is important to ask yourself:

• Do you typically pay your closing credit card balance in full each month? If not, you will be charged interest on your balance, and at a high interest rate, this could be expensive each month.
• Are you a frequent spender, and if so, would you earn enough rewards points to justify a cashback offer? If you do not use your card frequently enough, you may find you are paying fees and potentially a high interest rate without earning enough points to make it worth your while.

In general, before applying for a credit card or any kind of credit product, it is important to ask yourself whether it is a good fit for your financial situation, and whether you will be able to manage your spending.

Likewise, if you take out a credit card that offers cashback as an introductory offer, but you do not spend enough, you may not be able to claim the cashback reward, meaning that you have signed up for a credit card that charges high fees and interest rates, without reaping any tangible benefit.

It is also important to ensure that you read the product disclosure statement to determine whether the product you are considering is right for you.

Some potential benefits of cashback credit cards include:

• Simplicity: Some credit cards offer reward points that can be redeemed at a variety of different rates, so it may be unclear at a glance exactly how much value you have in reward points. With a cashback credit card, it may be easier to know the exact monetary value of the rewards you receive.
• Potential for other perks: Rewards credit cards can come with a range of other perks, ranging from partnered frequent flyer programs to complimentary insurance of various types. This will depend on the individual credit card, however.

Some potential drawbacks of cashback credit cards include:

• Higher annual fees and interest rates: Cashback credit cards, like other kinds of rewards cards, can come with higher interest rates than standard credit cards, and can also come with higher annual fees.
• Strict conditions: A cashback credit card may seem appealing, but when you read the fine print, you may discover that the conditions needed to earn cashback are strict. You may need to spend a certain amount per month (or within a specific time frame for introductory offers) to qualify, or the cashback limit may be capped at a lower amount than you were expecting.