How to find the right credit card for your finances
Thursday, 20 October 2011 11:39
By Kate Saines
There are thousands of different credit cards on the market, but this wide range of choice need not be bewildering.
On the contrary, there should be a credit card to suit every person in a variety of situations. And choosing the right one for you could end up being a financially rewarding move.
Here’s our round up of the most popular varieties of credit cards on the market, and the best of each.
Zero per cent credit cards
How do they work? There are two kinds of zero per cent cards. There are the ones which charge you nothing on balance transfers and the ones charging you zero per cent on purchases.
These zero per cent deals only last for a specified period of time, on average around ten months – but can be longer or shorter. After this you’ll pay the APR.
Watch out as balance transfer cards often charge you a higher rate than other cards on purchases or cash withdrawals. They also charge transfer fees.
Many credit card providers offer credit cards with zero per cent on both balances and transfers.
Who are they for? Balance transfer cards are designed for people with existing credit card debt. Obviously switching to a zero per cent card will enable you to pay the balance faster.
If the balance transfer period expires before your debt is paid off, you can switch to another zero per cent card.
Zero per cent on purchase cards are ideal for anyone who thinks they might not be able to pay off their balance in full immediately. For example, they can prove very handy at Christmas when our spending is greater than at other times in the year.
And they can come in handy as a way of paying for an annual insurance premium.
Best deals at the moment:
Barclaycard Platinum with Purchase Visa is currently offering zero per cent for 14 months, after this there is an APR of 18.9 per cent.
For a slightly longer purchase period Marks & Spencer’s credit card is currently offering a 15 month introductory zero per cent deal. This one is endorsed by consumer group Which? because it scores highly for customer satisfaction as well.
In the balance transfer card market, Barclaycard Platinum Extended Balance Transfer Visa comes out top offering zero per cent for 22 months. There is a transfer fee of 3.2 per cent.
Halifax Balance Transfer MasterCard is also offering an introductory zero per cent deal for 22 months and this comes with a 3.5 per cent transfer fee.
Rewards credit cards
How do they work? Each time you spend you’ll receive points; these build up so you can eventually use them to redeem gifts, vouchers or to make purchases in a particular store.
Whilst you’ll find rewards credit cards provided by banks and building societies, they are most commonly issued by stores themselves. Often these stores will only give you points for spending with them, or will give you more points if you use them ‘in house’.
Who are they for? Provided you pay back your balance in full every month, these cards work for everyone. Store-issued versions of these cards are ideal for people who shop regularly at that particular retailer.
Fail to pay back your balance in full and you’ll build up interest, the cost of which will devalue points you’ve earned.
Different rewards deals will suit different customers. If you have a phobia of flying, a card offering air miles is pointless. But if you spend hundreds every month shopping at a particular supermarket it would be ludicrous not to consider the benefits of that retailer’s credit card.
Best deals at the moment:
Most people use supermarkets so you’ll be pleased to hear many also offer reward credit cards. The best include Marks & Spencer’s credit card (mentioned before), which offers zero per cent on purchases, but you’ll also receive one point for every £1 spent at M&S and one point for every £2 spent elsewhere.
Another popular choice is Tesco Clubcard Credit Card offers zero per cent on balance transfers and purchase for 9 months and 15 months respectively as well as giving customers one point for every £4 spent. It also doubles as a clubcard, so you’ll earn your usual quota of loyalty rewards when you shop at Tesco.
And Sainsbury’s Nectar Credit Card offers new customers two points for every £1 spent in the first two years. Spend elsewhere and you’ll earn one point for every £5 spent. There are also zero per cent deals on this card too.
Cards like NatWest’s Your Points World MasterCard allow you to exchange points at a wider range of retailers. NatWest’s card is offering 2,500 bonus points to new customers, plus one point for every £1 spent on the card, to be exchanged with easyjet, ebookers, M&S, Amazon and Boots.
If airmiles are your thing, there are a few standout products.
Virgin Atlantic’s White Card offers 3,000 flying club miles when you make your first purchase, then one mile for every £1 spent. You’ll get double miles when spending on Virgin Atlantic or Virgin Holidays.
American Express’s British Airways card rewards customers with 1,000 BA miles when they spend £500 in the first three months. Then you receive one mile for every £1 spent. You’ll get a companion ticket when you spend £20,000 on your card in any year.
Cashback Credit Cards
How do they work? Every time you spend on your cashback credit card you’ll receive a percentage of that purchase back in cash.
Most credit card companies offer you between one per cent and three per cent cashback. So, if you spend £100 during one month on a card offering a two per cent cashback deal you’ll receive £2. Over a year spending £2,000 you’ll get £40.
Most cashback card providers pay your cashback reward annually by either sending you a cheque or crediting your account.
Who are they for? Like reward cards these cards work best for anyone who pays off their balance in full every month.
They offer more flexibility than reward cards, because you can use your cashback reward however you wish – not at specified shops – so they are best suited for people who want the freedom to spend their cash unrestricted.
Many do reward customers more cashback for making certain purchases – petrol, for example. So the way you earn cashback may be less flexible.
Best deals at the moment:
The well-promoted Santander 123 Cashback Mastercard offers one per cent cashback on supermarket purchases, two per cent on department store spending and three per cent on petrol.
The potential to earn up to three per cent makes it one of the best cashback cards on the market, but there is a high APR on purchases - 18.9 per cent to be precise – and there’s a £24 annual fee.
Meanwhile the American Express Platinum cashback card is ideal for big spending customers. It has a 2.5 per cent three-month introductory cashback offer (up to a maximum of £100).
After this you’ll receive 1.25 per cent cashback on purchases and a double cashback deal is available to those spending more £10,000 or more. The APR is 14 per cent but you must earn more than £30,000 per year to be eligible.
For an even better introductory rate, the Capital One World Mastercard is offering five per cent cashback for the first three months up to a maximum of £100.
After this you’ll receive 0.5 per cent for spending below £6,000, one per cent if you spend between £6,000 and £9,999 and 1.25 per cent for those with £10,000 plus worth of spends within a year.
Use the Myfinances.co.uk comparison tools to find the best deal on a new credit card
Credit cards to use abroad
How do they work? Many credit cards charge whopping fees for using them abroad. However, there are cards on the market which are perfect for using overseas because they offer preferential rates on any spending you do when outside the UK.
Look out for cards which offer no extra charges for spending in Europe and, ideally, worldwide too.
Who are they for? Regular travellers.
Best deals at the moment:
Saga Platinum Visa not only offers a low 11.9 per cent APR but also zero per cent on foreign exchange loading fees in the EU and worldwide. There is a catch – you must be 50 or over to be eligible.
Under-50s, however, could try the Post Office’s Platinum Mastercard, which has a rate of 16.9 per cent, as well as no foreign exchange fees. It also has zero per cent on balance transfers for 14 months.
Sainsbury’s Gold Credit card also has no foreign exchange fees and comes with family travel insurance. There is an APR of 9.94 per cent on purchases, but there is a £5 monthly fee.
Balance transfer credit cards
How do they work? Balance transfer credit cards are products that allow you to transfer an existing balance on an old credit card to a new deal, which will normally allow the borrower an interest-free period before they pay interest on the balance. Most balance transfer credit card deals charge a percentage (usually around two per cent) on the balance.
Who are they for? They are for borrowers who cannot afford to repay the balance on their credit card before high interest begins to apply. The idea is that you switch to a new zero interest balance transfer credit card and take advantage of a further period of low or zero interest and try and repay the debt.
Best deals at the moment:
The top two deals at the moment both give borrowers 22 months of zero per cent interest on transferred credit card debt balances.
Barclaycard offer zero per cent interest for 22 months before reverting to an annual rate of 17.5 per cent.
Halifax also offers a 22-month interest free period on transfers in, but this only applies to balances below £3,000. It then reverts to 17.9 per cent APR.
Virgin offer a balance transfer credit card with zero interest for 20 months, it then reverts to an APR of 16.8 per cent.
Use the Myfinances.co.uk comparison tools to find the best deal on a new credit card
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