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Credit Cards -
Make sure you choose your credit card with the right perks
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Credit cards used to be about cold hard figures, with the main methods of tempting customers, involved the offering of a good credit limit with a low annual payment rate (APR). In the face of greater competition over the past decade, tactics have had to change and now a whole host of other perks have been thrown in, although these are increasingly with minimal direct financial benefit as lenders look to cut down on giving cold hard cash away at cheap rates in the face of the credit crunch.
Air-miles were the first of the major widespread non-monetary perks that were introduced with credit cards in 1992 for Canadian AMEX customers. It was an idea that soon ‘took-off’ in the UK with Lloyd’s TSB cards still offering air-mile deals with their accounts to this day.
Obviously the more you spend, the more air-miles you get, this is great news for credit card companies who want to encourage (or at least used to) spending so they can profit on the interest. These cards also tend to attract higher earning customers; after all you need a fair amount of money to travel frequently for pleasure in order to make the scheme financially viable to yourself. Air-miles with these schemes also tend to expire after a few years of issue, and flights are broken up into zones.
The deals are hardly eye-catching either, the Lloyds TSB Air-miles Duo card (15.9% APR) account is good for couples. It offers two cards, so each person collects Air-miles independently but they're credited to the same account and so accumulate twice as fast at the rate of one Air-mile per £50 spent on the card (or one Air-mile per £25 spent outside the UK). For a single person however that rate of interest looks very high when you look at what you need to spend to go anywhere.
If you are accumulating Air-miles at one Air-mile per £50 spent, to get to Edinburgh (Zone 1) from London will cost 750 Air-miles for which you'll have to spend a whopping £37,500 on your card or a mere £18,750 if you spend all your money outside the UK. Zone 1 is the cheapest zone of flights, anywhere outside of the UK will be at least a Zone 2, or double Air-miles!
Football cards seem to fair little better with the Barclaycard Football Card at 14.9% APR, running a points scheme at a number of retailers including JJB Sports (seven points per £1 spent), Superdrug (10 points), Waterstone's (five points), WH Smith (five points), and Currys (three-and-a-half points).
Cardholders will be spending a great deal of time with these retailers if they are going to be redeeming any points for the range of merchandise on offer. How about 1,600 points for an Adidas football, 2,000 points for a £10 JJB Sports voucher and 7,000 points for their club's home football shirt? That is a lot of money in painkillers and books.
Straightforward cash is always a good winner with anyone and cash back cards can help offset rising repayment rates. For example, the American Express Platinum MoneyBack Credit Card at 18.9% APR is currently offering a whopping 5% on all purchases in the first three months to a limit of £4,000, that's up to £210 in free money. Thereafter, it reverts back to 0.5% on up to £3,500 a year, 1% on annual total of anything over £3,500 a year and for the big spenders 1.5% on an annual spends of over £10,000 and beyond.
The main problem with all of these deals is that in general, they have higher rates of borrowing than standard credit cards. If your spending patterns and habits mean you're perpetually in debt to your credit card, lessen the financial pain by simply plumping for a card with the lowest APR.
In short, credit cards with perks only really pay off for the consumer if two important rules are adhered to, the first is that you have to pay off your outstanding monthly balance in full at the time it's due, as any interest payments and late payment fees will wipe away the value of the perk; and secondly is to make sure the perk is something you're going to use.
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