Loyalty and Reward cards

With wallets and purses stuffed with plastic cards, loyalty cards and reward credit cards are one way to make them stand out from the pack. In return for the reward, you're allowing retailers and credit card companies to track the sort of shopping and spending you do.

Loyalty scheme cards

Loyalty cards are issued by retailers to give you points every time you spend in that particular store. Most of the better known ones are stand-alone cards issued by stores to keep you coming back to their branches. But they can't be used to make a payment and you can only redeem the points in the retailer's own stores.

Many of them can be used alongside their store-branded credit card so you could earn double or triple the number of points you’d earn from just using their loyalty card alone. For instance, if you pay for your groceries with a Sainsbury’s credit card and hand over your Nectar loyalty card at the till, you’ll earn points on both of them.

It's not quite as clear cut as that as many of the retailers' own brand credit cards have a loyalty point scheme built into them so the lines between loyalty and reward cards are blurred. On the other hand, some of the schemes have a number of partners so you earn points every time you shop at a variety of places and can use them to get money off different purchases.

Check out how many loyalty points you get for every pound you spend. For example, the Boots Advantage card gives you four points for every pound spent in its stores but as it is not a credit card you can only use it to get money off purchases in Boots. Again you can make the points go further by putting the card into a machine at the shop to get further discounts on offer on the day.

Some store cards come with loyalty schemes too. These act like credit cards which you can only be used in the branches of the store handing them out.  Be warned – store cards usually have interest rates that are 10% more than representative APRs on standard credit cards and the credit limit is often quite low.

Reward credit cards

Credit cards that give you rewards as you shop are a great way to get something for nothing. They are also run on a point system with each point typically worth 1p or half a pence.

There are a whole host of cards giving discounts on your shopping. Because cash back credit cards and those where you can earn 'miles' to put towards free flights are so popular, we deal with them separately.

How do you shop?

How and where you shop will help you decide which the best card is for you.

If a fair percentage of your shopping is already made at one store – for example a supermarket or department store – then it's worth taking out its branded credit card.

With M&S Money’s credit card or John Lewis’s Partnership credit card, for instance, , it’s usual to earn 1 point for every £1 spent in the shop but you have to spend £2 to earn a point in a competitor’s outlet with one point being worth 1p..

The same applies to the Tesco and Sainsbury's credit cards. You will earn more points when paying with the credit card for your shopping in their store or one of their partners and half the points elsewhere.

Check whether your reward card allows you to boost your points through linked reward schemes. The Nectar scheme, for instance, covers a huge number of brands and retailers.

Another way to turbo-charge your points is to watch out for promotions. For example, you may be offered 500 extra points when you spend more than £30 on lingerie before a certain date using your credit card. Just make sure you’re not buying something you don’t need simply to gain extra points.

You can use your points to get money off your shopping by simply having your points deducted from the card. Other schemes send out money vouchers to use to pay for future purchases. In most cases you can only use them to get money off when shopping in the retailer's own stores but this isn't always the case. But some allow you to convert them into discounts off holiday and travel.

For example, the Tesco Clubcard scheme allows you to convert the points into discount vouchers for all sorts of other things such as cinema tickets and activities.

And you usually get more spending power through these vouchers as the schemes multiply their face value by two to three times the face value.

Good for: Boosting your rewards. Reward credit cards often have special deals to reward your loyalty and you can usually earn points more quickly than via other cards.

Bad for: Choice. You are limited in where you shop and redeem the vouchers if you want to maximise the rewards you receive.

Top tips: Don’t be blinded by the freebies as typically reward credit cards do not have the cheapest APRs.

Always try and repay your reward credit card bill in full as this way you really are getting something for nothing. If you can't, you'd be better off with an interest-free purchase card or one with a low APR.

It’s good to get into the habit of putting all your monthly spend on your reward card to build up points and setting up a direct debit so that the balance is automatically paid off each month.

Remember every time you apply for a credit card whether you are given it or not it will leave a footprint on your credit record. Too many of these and a potential card provider may think you are in trouble and desperately need cash. It will then refuse to give you a card even if this is not the case!

Questions to ask

Before you sign up for any card, check:

• How does the cash back or reward system work?
• Is there a minimum spend (a month or a year) to earn cash back?
• How much do you actually have to spend on the card each month to get a meaningful reward?
• Is there an introductory offer – such as a free flight, extra cash back or reward vouchers?
• Do you earn points or cash back on all purchases or just in selected retailers?
• Can you earn more in cash or points by shopping in ‘partner’ stores rather than other retailers?
• Is there a cap on the amount of cash or points you can earn each month or year?
• Are there opportunities to earn extra points through special promotions throughout the year?
• How often will you get a cheque for cash back?
• Are points automatically converted to vouchers and sent to you or do you actively have to ring up or email to convert them?
• Where can you spend the vouchers and do you want to shop there?
• What is the interest rate if you don’t repay in full each month?
• Do you get points or cash on transferred balances?
•  Is there a 0% deal and how long does it last?