It is too easy, when you suddenly spot the perfect Christmas gift. At the till the shop assistant smiles and offers a 20 per cent discount “just by filling out this form”. Forgetting the interest rate and promising yourself you’ll pay off the balance, you agree and get a stingy store card with an absurdly expensive interest rate.
Not all cards are bad, but most are. Plan your spending carefully and ensure you have the right store, bank and loyalty cards. The right card can give you hundreds of pounds of rewards for your shopping — or a lengthy interest-free period to pay it off.
“Shoppers using a store card to buy now and pay later won’t be too surprised that it is a costlier way of paying for purchases, but they may not be aware of the huge savings to be made just by shopping around for other options for their purchases,” says Kevin Mountford, head of banking at MoneySupermarket.com.
The best options will vary, depending on whether you’re a card-holder who re-pays your balance each month, or someone who will be going into the red to fund this Christmas. If it’s the latter, think twice: is a happy festive day or two really worth the stress of long-term debt? But if you are intent on borrowing, at least do it cheaply - not via a store card.
Store cards: the going rates
John Lewis gives card holders six months to make purchases without paying interest, then hits them with charges at an average 16.9 per cent, meaning after the initial period, anyone spending £800 in a year would end up paying back £68 a month in repayments and interest. Debenhams, meanwhile, gives new card-holders a £20 gift voucher - then slaps them with interest at 19.9 per cent, meaning over a year, the interest would tot up to £81.
Homebase’s store card doesn’t come with a single enticing freebie - but it does charge interest at an average 29.9 per cent - meaning £800 of shopping would, a year later, cost a whopping £918.
Interest-free purchase cards
By contrast, apply for a credit card from a bank, and you can secure more than a year’s shopping without paying any interest at all. Tesco’s credit card offers 16 months interest-free on purchases, M&S Bank and Halifax offer the same deal for 15 months.
“Interest-free purchase cards can be a great alternative for people who have a big shopping spree coming up and need some extra time to pay it off, and the amount saved in interest can be used towards their goods, or to pay off their card,” says Mr Mountford. “In addition to the promotional offers, many of these cards also offer on going rewards, helping maximise your spend. However, shoppers should ensure they pay their balance off before the interest-free period ends and make sure they repay their bill on time, otherwise they will lose the promotional rate,” he says.
For shoppers who are able to pay back their spending each month, earn rewards for doing so. There’s currently huge competition in the cashback credit card market as banks try to secure customers ahead of the Christmas shopping spree: spending £500 a month on the most competitive cards will earn you more than £100 a year. Some have fees, so you’ll need to work out if you would earn more than the annual charge based on your average spending.
A shopper spending £500 a month would earn the most from the Barclaycard Cashback Card, pocketing £156 in 12 months, according to Uswitch - but customers do have to pay a £24 annual fee. American Express’s new Platinum Cashback Everyday card is free, but rewards are tiered. Someone spending £500 a month for a year would earn £110. Santander’s 123 card pays back one per cent on spend in supermarkets, two per cent in department stores, and - crucially, three per cent on purchases of Transport for London travelcards or train tickets and petrol. It has a £25 fee but is free during the first year for 123 current account customers.
There is another kind of shopping plastic - potentially less dangerous than store cards: the loyalty card. Even here, though, dangers lurk. Because some of these cards are so stingy as to be a waste of time, and if it encourages you to shop at a more expensive store, owning the card will cost you. Still, one of the most generous schemes comes from Boots. It pays out four Advantage Card points for every one pound spent in store or online. Each point converts to 1p. That means spending £1 gives you a 4p discount, but there are often ‘double points’ days when Advantage Card gives you the equivalent of 8 per cent cashback. Using the Advantage Card kiosks in stores can also lead to freebies or extra discounts.
Use it correctly and Tesco’s Clubcard scheme can also be lucrative. It pays out one point per pound spent in store or online, or half that rate for spending on fuel at the store’s petrol stations. Then every 150 points trigger a voucher worth £1.50 to spend in store. The key here, though, is never to spend it in Tesco shops. Instead, convert the voucher to ‘rewards points’ on the Clubcard website (tesco.com/clubcard). Swap points here for a restaurant deal, for example, and £5 of Clubcard points are converted into vouchers worth up to £20 to spend at restaurant chains including Pizza Express, Strada and Cafe Rouge.
So spending £100 a week at Tesco would earn 5,200 points a year, which could convert to £200 or more worth of vouchers, or about £50 to spend on groceries.
The Nectar scheme is less generous. Although points can be earned in places including Sainsburys, BP, Debenhams and Homebase, points depend on where spending takes place. On average, £1 shopping equals two points, but 500 points are then worth only £2.50.