Choosing the most suitable card is not a zero-sum game
WHEN Yorkshire Bank and Clydesdale Bank announced earlier this week their offer of 0 per cent interest on balance transfers for the first 16 months, it threw the cat among the pigeons. The two banks, both UK subsidiaries of National Australia Bank, leapt straight to the top of the best-buy comparison tables with the deal, which also gives 0 per cent interest on new purchases for the first three months.
During the financial crisis, the number of 0 per cent deals dropped sharply as a consequence of both the credit crunch and upcoming regulatory reform to the credit card industry. But this latest move is a sign that the market is starting to hot up once again.
But with so many on offer, choosing a credit card is not a simple task. “It depends on what the customer wants at the end of the day,” says Paul Lawler at Moneysupermarket.com. We take a look at which cards could suit your circumstances best.
1. BEST FOR PAYING OFF YOUR DEBT
If you are looking to reduce your debt in the cheapest possible way, look for credit cards with 0 per cent balance transfers. But make sure you pay off the whole balance within the offer period because afterwards, you will be charged around 17-18 per cent on the the transferred balance. Lawler recommends setting up a direct debit to pay off these cards so you always pay at least the minimum.
Alternatively, if you want to pay down your debt over a much longer period, you are best off choosing a card with a low APR. MBNA is the market leader and offers an APR of just 6.7 per cent and no balance transfer fee. Halifax’s easy rate credit card is close behind with an APR of 6.9 per cent.
The downside, says Martyn Saville at Which?, is that if interest rates go up, then the rate may not stay at such a low level.
2. BEST FOR SPREADING OUT PAYMENTS
Whether it is a holiday, a wedding or buying furniture, it is always tempting to put expensive purchases on your credit card and pay them off later.
This is all well and good, providing you have a credit card which offers 0 per cent interest on all purchases. “They are good if you want to buy something big and then spread the cost over the year,” says Saville.
Both Tesco and Sainsbury’s have highly rated credit cards with 0 per cent on purchases for the first 12 months. After the introductory period, you will be subject to 16.9 per cent and 15.9 per cent APR respectively. You also get the added bonus of Clubcard or Nectar points if you make purchases using these cards.
3. BEST FOR REWARDS
If you pay off your balance every month then the APR is not that important. What else it offers, however, is more interesting. Cashback, points and airmiles are all on offer through your credit card.
Pick the card to suit your lifestyle. If you shop in a range of places, you are best off getting a cashback card. A good one is the American Express Platinum Cashback which rebates you 5 per cent on purchases in the first three months, and 1.25 per cent thereafter. Money gained is issued 12 months after opening the account.
Make sure that the credit card actually rewards you shopping in places in which you already shop. Those who do all their shopping at either Tesco or Sainsbury’s will benefit from these supermarkets’ cards.
For frequent fliers, the top airmiles card on Moneysupermarket.com is the BMI American Express credit card. If you spend £250 on your card within the first 90 days, you get 20,000 destination miles. You will then earn 4.5 miles per £1 spent at flybmi.com and 1.5 miles on other spends.
4. BEST IF YOU TRAVEL ABROAD
Anybody who has ever returned from a foreign holiday to find their credit card bill amplified by transaction fees will know the importance of having the right credit card.
Nationwide used to be the king of this market, with its attractive commission-free purchases. But they’re not as good as they used to be, says Saville. Holders of Nationwide’s Gold credit card are now charged 1 per cent on all purchases made outside Europe.
The Post Office card is the best on Moneysupermarket.com. It has no overseas fee at all and charges 0 per cent interest on all purchases for the first three months. After, it rises to 16.9 per cent APR.
The Santander Zero credit card is also a winner with no overseas fees and is one of just a few cards that don’t charge for withdrawing cash. But the APR is 18.9 per cent and customer satisfaction with the credit card is low, warns Saville.