Fuel costs: How to save money at the petrol pumps

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The pain looks set to get even worse for motorists. Oil keeps reaching new trading peaks, and the chief executive of the world's largest energy company, the Russian firm Gazprom, has warned that the price could surge to $250 a barrel, which would take petrol costs to more than £2 a litre here in Britain.

Oil prices have already soared by 40% this year and motorists are now paying an average of 116.9p a litre for unleaded and 130.3p a litre for diesel. And with food and energy prices also on the up, consumers are under more pressure than ever to ease their financial burdens wherever possible.

One way of offsetting some of the increases in fuel costs is to be clever with a credit card. Here's how:

How a credit card can help you save at the pump

Traditionally credit cards are used to fund spending or, in the case of 0% balance transfer cards, to help battle debts. However, if you are able to keep on top of your finances then by picking up a cashback or reward card you could actually use a credit card to save money.

The concept is straightforward: For every purchase you make using your credit card, the issuer pays you back a small percentage as a 'reward'. This is either in the form of cashback which is usually either rebated monthly onto your card or sent annually in the form of a cheque, or reward points which can be exchanged for vouchers and things such as days out and subscriptions.

However, in order for this strategy to work you must pay off the balance in full each month, otherwise you will be left to pay interest - and one month's interest could be greater than a whole year's cashback gains. Nevertheless, if you're smart with the way you use the card you could make £200 a year, or even more, depending on how often you use your card, and the generosity of the reward scheme.

The key is to find a card that you can use regularly - and if you're a motorist, a card that offers cashback on your fuel spending is ideal. In this category, the Citi Shell Mastercard is a market-leader as it offers 3% cashback on Shell fuel spend and 1% on all other purchases - the cashback is rebated to your card every month. The interest rate on purchases is 15.8% so you must ensure you pay off the balance in full each month.

Average fuel users

If you fill up £50 a week on fuel at a Shell petrol station, you will be splashing out £2,600 a year. However, by shopping with the Citi Shell Mastercard you'd earn 3% cashback - that's equivalent to £78 off your annual fuel costs.

Of course this relies on you paying off your balance each month and consistently filling up at a Shell petrol station. If you're not a Shell customer, then don't worry - you can still save money with other cards.

For example, the Nectar card offers one point for every litre of fuel you use at a BP petrol station. You can collect points on fuel purchased as well as select items bought from BP Connect and BP Express stores. You can then spend the points earned on anything from spa days to cinema and theatre tickets. Alternatively they can be exchanged for Sainsbury's vouchers, which can help reduce your grocery costs.

If you take out the Nectar Credit Card, which charges a typical rate of interest of 18.9%, you will earn 5,000 Nectar bonus points as long as you spend £200 within the first 90 days; and you'll earn double points on purchases for the first three months.

Supermarket garages

If you fill up your car while you do your weekly shopping, take advantage of one of the many supermarket cashback cards. The Asda Credit Card includes 2p off every litre of diesel or petrol purchased from an Asda petrol station. Asda is offering a nine-month interest free period on balance transfer to new credit card customers, but don't be tempted to move money over onto the card if you will be using it to buy petrol with.

The interest free period for purchases lasts only for three months so if you use the card for both purposes you will get caught by the payment hierarchy trap - like most providers, Asda clears the cheapest balance first so after three months you will start accruing interest at 17.9% on any purchases you have made on the card. For more information on this trick, read our article, the interest-free credit cards that may charge you interest.

If you're a Sainsbury's shopper, you could either take advantage of the Nectar credit card or the Sainsbury's Bank Credit Card which offers 0% on Sainsbury's shopping for 12 months (including filling up at the petrol station) and 0% for 12 months on balance transfers, with a standard interest rate of 15.9%.

In addition, this card can earn you two points for every £1 you spend on Sainsbury's shopping and if you hand over your Nectar card - the reward card, not the credit card - at the same time you could earn an additional two points.

With the Tesco Clubcard Credit Card you earn one point for every £1 spent in a Tesco store or at a Tesco filling station. You'll also earn additional points if you remember to hand your Clubcard over at the same time. As with the Asda credit card, don't be tempted to transfer a balance over to your Tesco credit card: it offers a 13-month interest free period on balance transfers but only three months interest free for purchases.

What if you don't always fill up at the same petrol station?

If you don't consistently fill up at the same petrol station - perhaps because you travel to different places with work - you could still save money with a regular cashback card.

The American Express Platinum Moneyback Credit Card offers 5% cashback for the first three months on spend up to £4,000 and up to 1.5%. The Barclaycard Platinum Credit Card with Cashback includes 4% cashback until July 31 (up to a maximum of £30 cashback per month) and 0.5% until January 01, 2010. The Capital One cashback card meanwhile, offers 4% cashback on all purchases until September 01, 2008, and 1% thereafter - although the maximum spend is capped at £1,500 in any one statement period.

The key when choosing a cashback card is a high percentage cashback rate - remember that some card issuers offer a flat cashback rate whereas others offer different levels depending on how much you spend during the course of the year. So to maximise your returns you must evaluate how much you spend - if you have any major expenses coming up that a cashback card could be used for, it could be very worthwhile.

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