Money Insider: Credit card battle fought on two fronts

Retail spending has become subdued in the current tough economic climate, but that hasn't stopped credit card companies from falling over each other as they try to persuade us to sign up for their new offerings.

During 2011 the battle for new card business has tended to focus on extended interest-free balance transfer deals, however recently we have seen more cards offering rewards or cashback.

In the balance transfer market Barclaycard raised the bar to a record level earlier in the summer with a staggering 24-month interest-free deal and along with Halifax it still offers the joint longest term of 22 months, although the Halifax card imposes a maximum transfer limit of £3,000.

Many other cards are offering 0 per cent for 16 months plus, which is evidence that the balance transfer model still works for lenders. They receive a 2.5 per cent to 3 per cent transfer fee up front, and then hope that customers fall into the trap of using the card for their day-to-day purchases too which immediately triggers a new stream of interest revenue.

Prior to the balance transfer craze, credit cards were viewed purely as a tool to help people manage their finances, particularly if they had unexpected expenses that they needed to cover prior to pay day.

A promotional balance transfer arrangement from your card company is simply a loan, and as such there is absolutely no need for you to have a card. But from the providers prospective they want you to carry the plastic around with you, and their pricing models have factored in that a certain number of customers will at some stage start to use their card for new spending.

Making purchases on your balance transfer card is a huge financial mistake and plays straight into the hands of the providers.

They know that customers who make purchases with their card will be liable for interest charges unless they repay their credit card bill (including balance transfer sum) in full – either way it's a win-win situation for the lender, but for the customer, it defeats the object of applying for the card in the first place.

If you are going to opt for a promotional balance transfer card, be smart and don't ruin the benefits of being able to borrow cheaply because of a lack of discipline.

Cut the card up when it arrives, divide the balance transferred by the number of free months and set up a direct debit to pay this amount every month. That way you'll only end up paying a relatively small one-off fee and will be able to make a significant improvement to your overall financial position.

If you need a card to help with your cash flow, then by all means carry a separate card but always aim to repay the monthly statement balance in full if at all possible.

Long-term balance transfer offers are only suited to a limited and probably a dwindling number of customers, which may be the reason that some providers are now paying greater attention to cards that come with cashback or rewards.

One of the most high profile launches comes courtesy of Santander with its new 123 Cashback Credit Card which is being launched on Monday 5 September. The card comes with a £24 annual fee, however for a regular user of plastic, it can still deliver a reasonable return. The cashback is paid monthly at a rate of 3 per cent on fuel spending (maximum £300 per month), 2 per cent on department store spend and 1 per cent on supermarket purchases.

Customers will need to weigh up the potential returns based upon their own spending pattern, however a £500 monthly supermarket bill and a £200 monthly fuel spend will generate £11 of cashback per month or a net £9 once you factor in the cost of the annual fee. The interest rate on the card is 18.9 per cent and as with all rewards based cards, if you don't pay the entire balance every month, the interest charges can easily wipe out any benefits earned.

As well as the recent launch of the AA Rewards Plus card I mentioned a couple of weeks ago, we have also seen a revamp of the Platinum Cashback card from American Express. The 5 per cent rebate on spend in the first three months has been cut to 2.5 per cent (still maximum £100) and now it comes with an annual fee of £25. On the plus side the representative APR has been reduced to 18.5 per cent and the card now plays a flat reward rate of 1.25 per cent on all spend.

It's still possible to benefit from these deals if you use your plastic wisely, but only for those with an excellent credit rating.

Andrew Hagger is an analyst at Moneynet.co.uk

Compare with the Independent: See how much you could save by switching credit cards. Compare now

News
peopleTop Gear presenter and all-round controversialist is at it again
Sport
Aaron Ramsey celebrates after opening the scoring in Arsenal's win over Hull `
sport
News
peopleActress speaks out against historic sexual assault claims, saying things have 'gone quite far now'

Arts & Entertainment
A stranger calls: Martin Freeman in ‘Fargo’
tvReview: New 10-part series brims with characters and stories

VIDEO
Life & Style
Guests enjoy food and cocktail parings by Chefs Jimmy Bannos, Jimmy Bannos Jr, Daniel Rose and Mindy Segal with mixologists Josh King and Alex Gara at Bounty & Barrel: A Jack Daniel's Single Barrel Dinner Series at Heaven on Seven on April 9, 2014 in Chicago, Illinois.
food + drinkSprinkle Palcohol 'on almost any dish' for 'an extra kick' firm says...
Arts & Entertainment
Shaun Evans as Endeavour interviews a prisoner as he tries to get to the bottom of a police cover up
tvReview: Second series comes to close with startling tale of police corruption and child abuse
Arts & Entertainment
Schwarzenegger winning Mr. Universe 1969
arts + entsCan you guess the celebrity from these British Pathe News clips?
News
politicsLabour launches the 'completely hollow' Easter Clegg
Sport
Luis Suarez celebrates after scoring in Liverpool's 3-2 win over Norwich
sport Another hurdle is out of the way for Brendan Rodgers' side
News
Portrait of Queen Elizabeth-II by David Bailey which has been released to mark her 88th birthday
peoplePortrait released to mark monarch's 88th birthday
Arts & Entertainment
The star of the sitcom ‘Miranda’ is hugely popular with mainstream audiences
TVMiranda Hart lined up for ‘Generation Game’ revival
Life & Style
The writer, Gerda Saunders, with her mother, who also suffered with dementia before her death
healthGerda Saunders on the most formidable effect of her dementia
Arts & Entertainment
Last, but by no means least, is Tommy Cooper and the fez. This style of hat became a permanent trademark of his act.
comedyNot Like That, Like This centres on alleged domestic abuse
Arts & Entertainment
Oxegen in Ireland has been axed as promoters decide it is 'no longer viable'
arts + ents Promoters have axed the event as it is 'no longer viable in current form'
News
The troubled star is set to give fans the biggest insight into her life away from the headlines
people Star made the announcement during the final episode of the programme, entitled Lindsay
Finacial products from our partners
Property search
Have you tried new the Independent Digital Edition iPad app?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    Database Team Lead ( Leadership, Sybase, Computer Science)

    Negotiable: Harrington Starr: Database Team Lead ( Leadership, Sybase, Compute...

    C#.NET Delphi SQL Developer (C#,DELPHI,SQL)

    £40000 - £50000 per annum + Bonus+Benefits+Package: Harrington Starr: C#.NET D...

    VB.NET SQL Junior-Mid Level Developer (VB.NET,SQL,Excellent com

    £25000 - £35000 per annum + Bonus+Benefits+Package: Harrington Starr: VB.NET S...

    Trade Support, Application Support, Operations Analyst, CRM MS

    £45000 - £55000 per annum + Bonus and Benefits: Harrington Starr: Trade Suppor...

    Day In a Page

    Rubin ‘Hurricane’ Carter: The man who could have been champion of the world - and the Bob Dylan song that immortalised him

    The man who could have been champion of the world

    Rubin ‘Hurricane’ Carter and the Bob Dylan song that immortalised him
    Didn’t she do well?

    Didn’t she do well?

    Miranda Hart lined up for ‘Generation Game’ revival
    The Middle East we must confront in the future will be a Mafiastan ruled by money

    The Middle East we must confront in the future will be a Mafiastan ruled by money

    In Iraq, mafiosi already run almost the entire oil output of the south of the country
    Before they were famous

    Before they were famous

    Can you guess the celebrity from these British Pathe News clips?
    Martin Freeman’s casting in Fargo is genius

    Martin Freeman’s casting in Fargo is a stroke of genius

    Series is brimming with characters and stories all its own
    How I brokered a peace deal with Robert Mugabe: Roy Agyemang reveals the delicate diplomacy needed to get Zimbabwe’s President to sit down with the BBC

    How I brokered a peace deal with Robert Mugabe

    Roy Agyemang reveals the delicate diplomacy needed to get Zimbabwe’s President to sit down with the BBC
    Video of British Muslims dancing to Pharrell Williams's hit Happy attacked as 'sinful'

    British Muslims's Happy video attacked as 'sinful'

    The four-minute clip by Honesty Policy has had more than 300,000 hits on YouTube
    Church of England-raised Michael Williams describes the unexpected joys in learning about his family's Jewish faith

    Michael Williams: Do as I do, not as I pray

    Church of England-raised Williams describes the unexpected joys in learning about his family's Jewish faith
    A History of the First World War in 100 moments: A visit to the Front Line by the Prime Minister's wife

    A History of the First World War in 100 moments

    A visit to the Front Line by the Prime Minister's wife
    Comedian Jenny Collier: 'Sexism I experienced on stand-up circuit should be extinct'

    Jenny Collier: 'Sexism on stand-up circuit should be extinct'

    The comedian's appearance at a show on the eve of International Women's Day was cancelled because they had "too many women" on the bill
    Cannes Film Festival: Ken Loach and Mike Leigh to fight it out for the Palme d'Or

    Cannes Film Festival

    Ken Loach and Mike Leigh to fight it out for the Palme d'Or
    The concept album makes surprise top ten return with neolithic opus from Jethro Tull's Ian Anderson

    The concept album makes surprise top ten return

    Neolithic opus from Jethro Tull's Ian Anderson is unexpected success
    Lichen is the surprise new ingredient on fine-dining menus, thanks to our love of Scandinavian and Indian cuisines

    Lichen is surprise new ingredient on fine-dining menus

    Emily Jupp discovers how it can give a unique, smoky flavour to our cooking
    10 best baking books

    10 best baking books

    Planning a spot of baking this bank holiday weekend? From old favourites to new releases, here’s ten cookbooks for you
    Jury still out on Manchester City boss Manuel Pellegrini

    Jury still out on Pellegrini

    Draw with Sunderland raises questions over Manchester City manager's ability to motivate and unify his players