Why not remain in debt?

Card holders who pay in full each month should think again

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; Do you need financial advice on your investments, pension or insurance? Book a free consultation with an independent Financial Adviser at VouchedFor.co.uk

Arts and Entertainment
Ramsay Bolton in Game of Thrones
tvSeries 5, Episode 3 review
News
peoplePair enliven the Emirates bore-draw
Arts and Entertainment
tv
News
Britain's opposition Labour Party leader Ed Miliband (R) and Boris Johnson, mayor of London, talk on the Andrew Marr show in London April 26
General electionAndrew Marr forced to intervene as Boris and Miliband clash on TV
Finacial products from our partners
Property search
  • Get to the point
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

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

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    Ashdown Group: Treasury Assistant - Accounts Assistant - London, Old Street

    £24000 - £26000 per annum + benefits : Ashdown Group: A highly successful, glo...

    Ashdown Group: Business Analyst - Financial Services - City, London

    £50000 - £55000 per annum: Ashdown Group: Business Analyst - Financial Service...

    SThree: Trainee Recruitment Consultant

    £18000 - £23000 per annum + OTE £45K: SThree: At SThree, we like to be differe...

    SThree: Trainee Recruitment Consultant

    £20000 - £25000 per annum + competitive: SThree: Did you know? SThree is the o...

    Day In a Page

    Not even the 'putrid throat' could stop the Ross Poldark swoon-fest'

    Not even the 'putrid throat' could stop the Ross Poldark swoon-fest'

    How a costume drama became a Sunday night staple
    Miliband promises no stamp duty for first-time buyers as he pushes Tories on housing

    Miliband promises no stamp duty for first-time buyers

    Labour leader pushes Tories on housing
    Aviation history is littered with grand failures - from the the Bristol Brabazon to Concorde - but what went wrong with the SuperJumbo?

    Aviation history is littered with grand failures

    But what went wrong with the SuperJumbo?
    Fear of Putin, Islamists and immigration is giving rise to a new generation of Soviet-style 'iron curtains' right across Europe

    Fortress Europe?

    Fear of Putin, Islamists and immigration is giving rise to a new generation of 'iron curtains'
    Never mind what you're wearing, it's what you're reclining on

    Never mind what you're wearing

    It's what you're reclining on that matters
    General Election 2015: Chuka Umunna on the benefits of immigration, humility – and his leader Ed Miliband

    Chuka Umunna: A virus of racism runs through Ukip

    The shadow business secretary on the benefits of immigration, humility – and his leader Ed Miliband
    Yemen crisis: This exotic war will soon become Europe's problem

    Yemen's exotic war will soon affect Europe

    Terrorism and boatloads of desperate migrants will be the outcome of the Saudi air campaign, says Patrick Cockburn
    Marginal Streets project aims to document voters in the run-up to the General Election

    Marginal Streets project documents voters

    Independent photographers Joseph Fox and Orlando Gili are uploading two portraits of constituents to their website for each day of the campaign
    Game of Thrones: Visit the real-life kingdom of Westeros to see where violent history ends and telly tourism begins

    The real-life kingdom of Westeros

    Is there something a little uncomfortable about Game of Thrones shooting in Northern Ireland?
    How to survive a social-media mauling, by the tough women of Twitter

    How to survive a Twitter mauling

    Mary Beard, Caroline Criado-Perez, Louise Mensch, Bunny La Roche and Courtney Barrasford reveal how to trounce the trolls
    Gallipoli centenary: At dawn, the young remember the young who perished in one of the First World War's bloodiest battles

    At dawn, the young remember the young

    A century ago, soldiers of the Empire – many no more than boys – spilt on to Gallipoli’s beaches. On this 100th Anzac Day, there are personal, poetic tributes to their sacrifice
    Dissent is slowly building against the billions spent on presidential campaigns – even among politicians themselves

    Follow the money as never before

    Dissent is slowly building against the billions spent on presidential campaigns – even among politicians themselves, reports Rupert Cornwell
    Samuel West interview: The actor and director on austerity, unionisation, and not mentioning his famous parents

    Samuel West interview

    The actor and director on austerity, unionisation, and not mentioning his famous parents
    General Election 2015: Imagine if the leading political parties were fashion labels

    Imagine if the leading political parties were fashion labels

    Fashion editor, Alexander Fury, on what the leaders' appearances tell us about them
    Phumzile Mlambo-Ngcuka: Home can be the unsafest place for women

    Phumzile Mlambo-Ngcuka: Home can be the unsafest place for women

    The architect of the HeForShe movement and head of UN Women on the world's failure to combat domestic violence