Moneyextra Guides – Is it the card for you?
Where once there was an advertising campaign saying something like, “the X card says more about you than anything else”. Now we can have cards that say “I support Tottenham Hotspurs”, or perhaps a political party, or an animal welfare organisation. That may be exactly what you want from a credit card – especially because every time we use the card our favoured organisation or cause gets a rake off.
However, some of us are more hard-headed financially and the profusion of credit cards can confuse and perplex. The answer to the question ‘which card is right for me?’ depends upon how you use credit cards. If you pay off your full balance each month, there is no point in getting a card with an annual fee. Also, avoid those cards with no interest-free period because you will be paying interest from the moment an item appears on your statement. If you do find a no fee card with a 52-59 day interest free period following the statement date and you continue to pay off your balance in full each month the interest rate of the card itself for outstanding balances is irrelevant.
If you do not always pay off your balance each month, you need the lowest interest rate. Usually a lower interest rate will be at the cost of having to pay an annual fee of between £10 and £12. In this case it is also important to have as long an interest free period as possible. Some of the lowest rates are provided by card issuers who have no interest free period, which means that interest accumulates from the date the purchase appears on your statement – around two to four days after you flashed the plastic. For some people it may be worth paying the annual fee and then paying off in full with a card that has an interest-free period. Using your card abroad
A credit card issuer will charge you a certain percentage for foreign exchange transactions. However, Frizzell Bank (now owned by Liverpool Victoria friendly society) does not do this. So, if you use your card abroad a lot, it may be cheaper on balance to pay Frizzell’s £11 annual fee. But also remember to check the typical exchange rate used by the various providers as this will obviously have an impact also. Point made?
Be careful with those cards that give you points. terms and conditions vary so much that some can be a bargain in certain circumstances, but others are not. The points scheme is there to make you spend more so that you will have the illusion you are getting a good deal when you see all the points awarded on your monthly statement. There are a number of variations on this such as the GM card where you get points towards a reduction in the price of a car. However, Alliance & Leicester awards cash rather than points with its Money Back Credit Card. You receive 2 per cent of the amount you spend as money back, plus 5 per cent money back on any interest you choose to pay. Also, there is no annual fee. Here, those of you who pay your balance in full are getting a much lower rate than the effective APR, when taking the cash back scheme into account.
Capital One and People’s Bank of Connecticut are recent US based entrants. MBNA has a base in the UK as well, as does Advanta which has teamed up with Royal Bank of Scotland to provide a good deal. Another major card marketing effort is by the Goldfish organisation. It’s card will help pay the TV licence, cut BT phone bills, or you can redeem your points at Boots of for Marks & Spencer vouchers, as well as saving on your British Gas Home Energy gas and electricity bills. It also has no annual fee and provides up to 52 days interest free credit.
Then there are the ‘affinity’ cards, which give around £5 and £10 when you sign up and between 2.5 and 5 pence per transaction to a favoured organisation such as the charity, sports club or even political party that is associated with the card. This is fine, unless your affinity is simply towards getting the best deal, however.
Bank One International is really reaching out to claim new markets in the UK, with a wide range of affinity deals. It is in partnership with the David Lloyd Leisure organisation to create the David Lloyd Lifestyle credit card. This has 5.9% APR for first five months, then 16.9% APR. There is no annual fee and 39 days interest free period. Free access to GP advice service is provided, which normally costs members £73. Also discounts on food and drink, holidays, ticket booking and motoring services and mobile phones. 100 days free purchase protection, travel accident insurance, emergency medical and legal insurance, flight delay and lost luggage insurance.
Another feature is how credit cards are now widely accepted in supermarkets – especially if they are offered by the supermarket itself. For instance, HSBC bank has just teamed up with supermarket Morrisons, who have joined the majors such as Tesco, and Sainsbury’s who have set up their own financial services organisations. Use of the cards with a reward point card can mean that your collected reward points are increased on your monthly statement. Bring out the smelling salts!
Another ploy of the credit card providers is to ‘flatter’ the card holder by sending a note saying that they are so impressed with the management of the account that they have decided to raise credit limit by, say, £500. What they are really saying is we are so worried that you will defect to a cheaper rate card that we are prepared to see you sinking even deeper in debt on our own one.
Real card tricks
Of course, the real fly operators amongst the community of credit card holders are those who spot the lowest introductory rate, sign up to the card and then depart before the normal rate kicks in while already having the next best introductory rate card in hand. Nice work if you can manage it, but if a credit crunch occurs, it may mean it is best to hold on to an existing card with a high limit.
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Also see: historic credit card rates