| Banking on the plastic
There are more than 1,500 credit cards available in this country. So which one is right for you? Paul Farrow talks you through the maze The British public's appetite for credit just gets bigger every year. We spent a staggering £92billion on credit and debit cards last year, £8.8billion in December alone, according to the Credit Card Research Group. That's an increase of £44billion in just five years. It is easy to see why credit cards are so popular. They're hassle free and you don't have the worry of carrying wads of cash in your purse. You can also get up to 59 free days of credit, depending on which card you use. As a result of our love of plastic, competition between providers is now fiercer than ever, leading to lower rates and better perks. There are currently more than 1,500 different credit cards on the market. But how do you decide which card is best for you?
APRs explained The APR is the total amount payable each year. It includes the interest rate and other charges, such as an annual fee. If you do not have to pay an annual fee, the APR is simply the monthly interest rate compounded over 12 months. Interest rates vary greatly, but this does not mean you should simply opt for the card with the lowest rate.
Many card providers tempt new customers with 'teaser' rates, only to put them back up after the introductory period has lapsed. Halifax and Egg, for instance, charge zero per cent to new cardholders, but revert to their standard rate at the end of the introductory period. The Halifax rate therefore increases to 17.9 per cent after five months, while if you take out an Egg card now it will go to 12.9 per cent at the end of June this year. It is a good idea to compare the introductory rates with their respective standard rates. Choosing a card just because it offers a low initial rate may work out more expensive over the long term than a card that charges a slightly higher introductory rate but a lower standard rate.
Choose a card to suit your style Halifax, for example, gives £1 cash back for every £100 you spend, while Alliance & Leicester and Egg give you 50p for every £100. Rather than cashback, cards from Tesco and Natwest, for example, give you points that can be exchanged for air miles or leisure vouchers. If, on the other hand, you are a long-term borrower, interest rates are very important. To keep costs low, you should switch aggressively between the very best deals.
Finding the best deals But 90 per cent of cardholders have no intention of changing their credit card, despite the potential savings, according to Morgan Stanley. Changing cards should not be a problem and it doesn't matter how many times you do it, because card issuers can't tell how many cards you have had in the past couple of years.
Read the small print Interest rates and benefits are used to lure people, but check to see if there are any other charges hiding around the corner. Most cards have now ditched their annual fee - which can be as much as £12 - but some, such as American Express with its Blue card, haven't. There are also some cards that charge you for a late or missed payment. First Direct hits you with a whopping £25 fee for each late payment, while Cahoot, Egg and Halifax levy an automatic fine of £20 each time you exceed your credit limit. If you feel pangs of guilt when you go on a shopping spree you might want to consider an affinity card. These cards make a small donation to named charities when you spend above a certain amount. But again be careful - most affinity cards charge high rates of interest. You may be better off going with a low interest rate card and donate the interest you save.
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