16:03 21 February 2013
If your salary is paid into your current account and you rely on this money until your next pay day, but also use your credit card from time to time, then you probably represent the typical working consumer.
But you're also missing out on an easy way to make your money work harder for you.
By turning your normal spending pattern on its head and putting your everyday spend on to a credit card, while leaving the money in your current account untouched for the month, you could find yourself considerably better off with no extra effort.
But it has to be the right type of credit card and you'll also need the correct current account to make it work effectively, so let's take a closer look...
How to cash in on cashback
A recent study by the Post Office found that more than a third (35%) of credit card users in the UK would be relying on their plastic to see them through January and cover their daily purchases.
A whopping 40% said they'd use their card to cover grocery costs and 7% said they'd use it to cover their fuel bills.
At first glance, this all sounds a bit reckless and a sure fire way to run up unnecessary debt. But in fact, provided it's done correctly, using your credit card to fund your everyday costs could leave you quids in - although it does take some self-discipline.
To get started, you'll need to apply for a cashback credit card. Once you've got one in wallet, you can then use it to pay for items you'd normally spend your salary on - everything from eating out to the electricity bill.
There's just one catch. In order to avoid paying interest, you MUST pay the balance off in full at the end of the month - using the wages you've left untouched in your current account - as the amount you will pay in interest will far outweigh any money you make back.
What to look for in a cashback credit card
When choosing your cashback credit card you don't need to worry too much about the annual percentage rate (APR) as you'll be clearing your balance each month. But you do need to be aware that some cards come with an annual fee which will have an impact on how much cashback you earn.
Also bear in mind some cards come with a headline-grabbing, introductory cashback rate that will drop to a more modest amount after a few months - typically three.
For instance, the Barclaycard Cashback Card offers 6% cashback on the top five purchases during the first three months, up to a maximum of £120. From then on it pays 2% on your top five buys and just 0.5% on everything else.
Watch out as it comes with an annual fee of £24. However, our number crunchers estimate that if you spend £1,000 per month on your card, you stand to earn £221 cashback over the year once the fee has been deducted.
Santander's 123 Credit Card also comes with an annual fee of £24 but it enables you to earn 1.00% on your supermarket spending (both in store and online), 2.00% on goods bought from department stores and 3.00% on fuel and some rail travel.
There's no upper limit on supermarket or department store spending but you can only spend up to £300 per month on fuel, rail travel or a combination of the two.
If you're looking for a fee-free alternative, the American Express Platinum Cashback Everyday Card, Capital One's Aspire World and Sainsbury's Cashback Credit Card are all worth considering.
Both the American Express and Capital One offerings will give you 5.00% cashback, up to a maximum of £100, during the first three months on spending up to £2,000. After this introductory period, both cards offer a maximum cashback rate of 1.25%.
The Sainsbury's card also offers 5.00% cashback for three months but this is only valid on shopping carried out in Sainsbury's and is capped at £50. You will also earn £5 cashback each month when you spend at least £250 on Sainsbury's shopping and £250 a month anywhere else.
How to cash in on your current account
Once you've put your monthly outgoings onto your credit card and left your money in the bank accumulating interest, the next step is to ensure you're getting the best interest rate available.
And with savings rates so low at the minute, some current accounts are actually offering a good alternative for savers.
For instance, with Santander's 123 account, as long as you pay at least £1,000 per month into your account, you'll also earn interest on your balance. You'll earn an annual equivalent rate (AER) of 1.00% on balances between £1,000 and £1,999.99, 2.00% between £2,000 and £2,999.99 and 3.00% on balances over £3,000 up to a maximum of £20,000.
On top of that, the account offers cashback on direct debits linked to the account. So, if you have a mortgage with Santander, paying this from your 123 account will earn you 1.00% cashback, as will your council tax and water bill. Gas and electricity bills earn 2.00%, while mobile phones, landlines, broadband and TV packages all earn 3.00%.
However, the account does come with a £2 monthly fee so you'll have to factor this in when doing your sums.
The Lloyds TSB Classic Account with Vantage works in a similar way, but without the cashback. You can earn1.50% AER on balances between £1 and £999.99, 2.00% AER if you've banked £1,000-£2999.99 and 3.00% AER if you have between £3,000 and £5,000 in your account.
The Lloyds TSB account doesn't have an annual fee but does require you to pay in at least £1,000 a month.
Another option is the Halifax Reward Account which, instead of paying interest on your bank balance, will give you a £5 reward every month you pay in at least £1,000. You'll also be given £100 for switching to the account. However, changes will be made to this account in May - read more here.
How much can you make?
The amount of money you can make back obviously depends on how much you spend on your credit card each month and how much money you put in the bank.
But to give you an idea, if you took out a Santander 123 credit card and spent £1,000 per month on it, you could make £192 in a year (after the £24 fee has been deducted).
Because you're using your card for purchases, you can leave £1,000 sitting in your Santander 123 account, which will earn you £10 in interest. You can then earn 1.00% cashback on your £120-a-month council tax bill, £30-a-month water bill and £700-a-month Santander mortgage.
Then there's the 2.00% cashback you earn on your £80-a-month gas and electricity bills and the 3.00% you earn on the £55 you spend every month on your phone, mobile, broadband and TV.
This means that over the course of a year, your 123 account will have earned you £149 - falling to £125 when you deduct the £2 monthly fee.
When you add that to the money you made on your 123 Credit Card then you stand to walk away with an extra£317 in your pocket - all from simply shuffling your cash.
Please note: Any rates or deals mentioned in this article were available at the time of writing. Click on a highlighted product and apply direct. We're free, independent and compare all UK credit cards, as well as offering exclusive deals you can't get anywhere else. Contact MoneySupermarket.com at Moneysupermarket House, St David's Park, Ewloe, Flintshire, CH5 3UZ. © Moneysupermarket.com Ltd 2013.
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