Why not remain in debt?
Card holders who pay in full each month should think again
Sunday 29 October 2000
For years, keeping one step ahead of credit card companies has meant clearing your balance every month to avoid paying interest on purchases. But now the arrival of 0 per cent introductory offers means the canny thing to do is
not to clear your balance every month.
For years, keeping one step ahead of credit card companies has meant clearing your balance every month to avoid paying interest on purchases. But now the arrival of 0 per cent introductory offers means the canny thing to do is not to clear your balance every month.
Credit cards used to be regarded as simple products. They enabled those who paid off their balances in full to enjoy an interest-free period of anything up to 56 days, while those who didn't had the benefit of being able to pay for purchases gradually rather than outright.
As the competition has hotted up, credit cards have grown in complexity. The standard annual percentage rates (APRs) vary greatly; introductory offers are popping up all the time; and loyalty points and cashback enhance the benefits of paying by credit.
It has become advisable to shop around to maximise the benefits available to you and minimise the interest you pay if you do not clear your balance every month.
Cahoot was the first credit card issuer to offer a 0 per cent interest rate, and its first 25,000 customers are enjoying an interest-free period until June. Egg and Capital One have followed suit by offering new customers an interest-free period for the first six months. Egg also gives 1 per cent cashback on card purchases.
There are other providers which have low introductory offers. RBS Advanta is charging 2.9 per cent interest until June, and Nationwide has an introductory rate of 3.5 per cent for the first six months.
Low rates such as these are good news for the 50 per cent of credit card holders who do not clear their balances at the end of the month. But what a lot of people don't realise is that the other 50 per cent who do repay what they owe in full can also benefit.
"People who pay their credit cards off in full each month, and it was good to do so, should look again at their course of action, as they could actually be doing themselves a disservice," says Simon Nixon, chief executive of Moneysupermarket.com.
The reason for this is that while the credit card providers won't be making any money from you if you clear your balance, you can play them at their own game and make money out of them and their low offers.
Rather than pay your balance off in full at the end of the month, consider paying the minimum required and put the remainder of what you would normally pay into a savings account. That way you can be earning interest throughout the introductory period.
At the end of the offer, when the introductory interest rate increases to the standard rate, you will then have the amount needed to clear your balance from the money in your savings account, plus interest.
Calculations from Moneysupermarket show that, if you get an Egg credit card (0 per cent APR for the first six months and a 1 per cent cashback) and a Cahoot cheque account (6.5 per cent annual equivalent rate for balances under £5,000 and 7.1 per cent above £5,000), you could gain £225 in six months by not clearing your balance and paying only the minimum during the introductory offer. This amount assumes the cardholder spends £1,500 a month on the card.
If you don't fancy an internet account, there are other savings accounts that offer good rates of interest (see table). Firms now offering cashback include Alliance & Leicester, American Express and Morgan Stanley Dean Witter (MSDW).
* Contacts: Alliance & Leicester, 0500 838383; Amex, 0800 700111; Cahoot, www.cahoot.com; Egg, www.egg.com; Moneysupermarket, www.moneysupermarket.com; MSDW, 0800 917 1333; Nationwide, 0500 302011; RBS Advanta, 0800 077770.
Independent Partners; request a free guide on NISAs from Hargreaves Lansdown
Newcastle manager taunted again as his side loses to Stoke
- 1 Five-year-old Iris Grace is raising awareness of autism through her extraordinary paintings
- 2 Car tax disc changes: Two days to go - and they affect you much more than just not displaying a piece of paper
- 3 The Simpsons death: Creator Al Jean would 'kill himself' before a character like Homer or Lisa
- 4 British man raped while urinating in bushes at Oktoberfest beer festival in Germany
- 5 Pope Francis assures atheists: You don’t have to believe in God to go to heaven
Isis, we are told, is a 'clear and dangerous threat to our way of life'. I’m sorry, but I just don’t buy it
Exclusive: 'Putin's Russia has been my biggest regret,' says Nato's outgoing Secretary General
'Women, walk wherever you want' posters taken down in Stamford Hill following 'unacceptable' signs separating men and women
There’s no excuse for Dave Lee Travis’s behaviour, but we need to keep a sense of proportion
Mark Reckless becomes second Tory MP to defect to Ukip in a month
Should gay sex be illegal? 16% of Britons think so
- < Previous
- Next >
iJobs Money & Business
NEGOTIABLE: Austen Lloyd: TRUST ACCOUNTANT - KENTIf you are a Chartered Accou...
£18000 - £20000 per annum + OTE £30000: SThree: SThree are a global FTSE 250 b...
Highly Competitive Salary: Austen Lloyd: CITY - Law Costs Draftsperson - NICHE...
£300 - £330 per day: Ashdown Group: SQL Developer (Stored Procedures) Watford...
Day In a Page
A five-bedroom terraced house on the popular Peterborough Estate, ideally located for both Eel Brook Common and South Park
A state-of-the-art farm-building conversion on the former Cliveden Estate, with 11,420sq ft of internal space, cinema and wine cellar
A three-bedroom, 15th-century cottage with original features in the picturesque village of Sissinghurst
A six-bedroom terraced house with large south-facing roof terrace, cinema room and wine cellar
A new seven-bedroom home built in Queen Anne-style with swimming pool and parkland views in Mortimer
A listed, four-bedroom farmhouse in the rural hamlet of Rushall with detached barn, four acres of gardens and paddocks
A first-floor flat with two bedrooms, a spacious reception room and communal grounds in a leafy part of London
A three-bedroom flat with a spacious rootop terrace and balcony, accessed from a private gated courtyard
A Grade II-listed pile with six bedrooms, stables and 39 acres of grounds in Standlake
A two-bedroom flat with boutique hotel-style interiors, close to the foodie haunt of West End Lane
A two-bedroom flat in a beautiful old vicarage, with many original features, close to the city centre
A three-bedroom 16th-century home with an aga kitchen, private gardens and heated outdoor pool, in Hadleigh
A three-bedrom home in sought-after Queen's Gate Mews, with Italian marble-finished bathrooms
Surrounded by glorious countryside in the village of Udimore, sits this impressive four-kiln oast and barn conversion
A five-bedroom house in the picturesque village of Kettlewell, north Yorkshire
An 18th-century former coaching inn with original staircase, open fireplaces and beams throughout
A Grade II-listed Georgian town house with three bedrooms and a south-facing courtyard, near Arundel Castle
Feel on top of the world at this über chic penthouse on the 37th floor of one of Europe’s tallest blocks.
A Grade II-listed Victorian villa with six bedrooms and two further cottages, all with spectacular sea views
A grade II-listed, Georgian cottage with mature 50ft garden, perfect for summer entertaining
A magnificent Georgian pile with turrets, seven bedrooms, a heated pool and four acres of gardens
Fairoak Farm has five bedroom suites, gym, outdoor swimming pool and golf course
Chic two-bedroom river-fronted flat with a private lift that delivers you directly to your home
A spectacular seven-bedroom Tudor pile, once owned by Henry VIII, with 18 acres of land
A seven-bedroom Georgian property previously used as a picturesque wedding venue
A split-level flat in a church conversion with two en suite bedrooms and 1,200sq ft of living space
A three-bedroom bungalow situated behind an impressive stone wall, £645,000
Windsor Castle overlooks this three-bedroom Victorian cottage located on one of Windsor's smartest roads
Chapel House is a former vicarage with nine bedrooms in the beautiful Upper Wye Valley
A five-bedroom B&B and separate owner's accomodation with potential for conversion
Enjoy summer by the Thames in this two double-bedroom converted warehouse in Rotherhithe village
A one-bedroom, luxury apartment with private gym and concierge service in Moorgate
A four-bedroom house in Hermitage Gardens with three reception rooms and landscaped gardens
A seven-bedroom Grade II-listed property with a separate self-contained apartment
A five-bedroom Victorian house with three reception rooms and galleried landing, £695,000
A six-bedroom farmhouse with five acres of land in a former cloth-making village
A secluded seven-bedroom detached house with large private garden, £490,000
A three-bedroom cottage overlooking Sarratt village green with open fires and solid oak floors
A three-bedroom maisonette flat in a Grade I-listed, Georgian townhouse in a sought-after location