Britain’s transition into a nation of accidental savers last year certainly had an impact on its credit card bill.
Those with extra disposable income and nowhere to spend it as a result of the lockdown opted to pay down their debts and fatten their bank balances, where once the nation eschewed a savings habit.
Britain owed £58.4billion on credit cards at the end of 2020, according to the Bank of England, down 16.2 per cent from the end of 2019, after billions of pounds were paid off balances last year.
After a new credit card? We pick six of the best available in this regularly updated guide
But while that suggests healthier things for a portion of the nation’s personal finances, there are still plenty who need, or simply fancy, a new plastic, be it for a big purchase, clearing outstanding debt, or even in preparation for a post-coronavirus holiday.
Although availability of interest-free deals and cards is low by historical standards, it has bounced back in recent months and there are now plenty of decent options, even if they aren’t as generous as they once were.
With that in mind, find our best picks for some of the best credit cards around below.
1. Best card for clearing debts: Sainsbury’s Bank
Interest-free balance transfer deals are among the most popular tip for those looking to cut the cost of their debts and pay them off before interest kicks in.
The cards let holders move debt from an existing card, usually in exchange for a fee, to one interest free for a certain period.
Every year banks tend to make their 0 per cent deals more generous in a bid to attract new applicants who want to cut down the cost of Christmas spending they might have put on a credit card, and 2021 was no different.
The length of these deals is at an all-time low however, with banks cutting their interest-free terms in the face of a crackdown on persistent debt, which is where people simply shuffle debt from card to card, paying the minimum possible without actually clearing any of their borrowing.
The best currently around is offered by Sainsbury’s Bank, after the supermarket lender made its term lengths more generous late last year.
It offers 0 per cent interest on balance transfers for up to 29 months, although some applicants will get 25 or 21, with a fee of 3-4 per cent of the balance being transferred, at a minimum of £3.
Transfers made after that period will incur interest of 21.95 per cent, while the card comes with a representative APR of 21.9 per cent on purchases.
It also offers 0 per cent interest on purchases for the first three months of holding the card.
Applicants must have a minimum income of £10,000 to qualify for the card, while it requires a minimum payment of 2.3 per cent of the balance each month or £5, whichever is higher.
What’s representative APR?
It is plastered over bank and credit card providers’ websites but how many people really understand what ‘representative APR’ means?
Designed to make it easier to compare financial products like credit cards, loans and overdrafts, ‘annual percentage rate’ works out the cost of borrowing over the course of a year, including any fees.
This is why Amex’s Gold card has a 22.2 per cent purchase rate but a 56.6 per cent representative APR, it’s because of the £140 annual fee that comes with the card.
Representative meanwhile means it is the rate offered to 51 per cent of accepted applicants, meaning customers might end up with a higher rate.
This can be seen in some of the balance transfer and purchase deals included in this guide, some customers may get the headline interest-free term and others might end up with a shorter period to pay off their debts or pay off their purchases.
This could change in the future however, as regulators are increasingly deliberating whether to publish what this means in terms of ‘pennies and pounds’ for borrowers.
2. Best fee-free card for clearing your debts: Santander
Those with smaller debts who are happier to have less time to pay them off might also be willing to consider applying for a balance transfer card which doesn’t charge a fee as a trade-off.
For those consumers, the best option right now is Santander’s Everyday Credit Card. Like Sainsbury’s Bank, it also charges 0 per cent on purchases for the first three months, while it also has a lower APR of 18.9 per cent.
In return for charging no fees on balance transfers it offers a shorter time to pay off debt in the form of an 18-month interest-free deal. Anyone making a transfer after that introductory term expires, however, will pay 3 per cent of the transferred balance, or £5, whichever is higher.
Applicants must have a minimum income of £7,500 and cannot transfer debts from another Santander credit card.
3. Best card for big purchases: Barclaycard
Like their balance transfer cousins, cards aimed at customers making big purchases interest-free have also seen their term lengths slashed in recent years, not least because banks are less keen to hand out ‘free’ unsecured debt during a pandemic and accompanying economic crisis.
Nonetheless, some deals, albeit shorter ones, remain available. Barclaycard’s Platinum Visa card is the joint-longest 0 per cent deal on the market without a fee, according to Moneyfacts. It offers 20 months interest-free on purchases and up to 18 months on balance transfers, making it an option for those clearing debts too.
It charges 21.9 per cent APR on purchases and a 2.9 per cent fee on balance transfers made within 60 days of opening the account. It has a minimum payment of 3.25 per cent of the balances or £5 a month, whichever is greater.
What about borrowing a larger sum?
Someone wishing to borrow a larger sum and pay it back over a fixed period, for example if they’re buying a car or doing up their home, might actually be better off with a personal loan charging a lower APR.
While credit card rates are often 20 per cent or above, borrowers can take out a loan over a three, five or seven year term for £10,000 at a rate of as low as 2.8 per cent.
Here are the cheapest personal loan rates available right now, according to Moneyfacts:
– £10,000 over three years – Cahoot – 2.8 per cent APR – borrowers pay back £10,432.08
– £10,000 over five years – Cahoot – 2.8 per cent APR – borrowers pay back £10,718.40
– £10,000 over seven years – M&S Bank – 2.9 per cent APR – borrowers pay back £11,046.84
Caps on the fees merchants can be charged by card providers and banks’ squeezed profit margins mean cashback deals for both credit and debit card spending have also increasingly disappeared.
Certain supermarket deals are still available, but that cashback usually comes in the form of vouchers. Instead, the best port of call for everyday spending comes from American Express.
Its free Platinum Cashback Everyday Card is free, compared to the similarly named Platinum Cashback Card which comes with a £25 annual fee, and offers annual cashback provided cardholders spend £3,000 a year.
In the first three months it offers 5 per cent cashback on spending, up to £100, provided cardholders have not held an Amex card in the last two years. After that cashback is earned at a rate of 0.5 per cent if total annual spending clocks in at below £5,000, or 1 per cent if it is higher than that.
It comes with a representative APR of 22.2 per cent, charging the same amount on purchases, with a minimum payment of £25 a month.
Cardholders can also get a cashback bonus if they refer a friend to Amex and they can also take part in Amex’s ‘Shop Small’ promotions, which tend to give £5 back when cardholders spend £10 at participating retailers.
Amex is also one of the best when it comes to rewarding spending. Different to cashback, this sees consumers rewarded for their spending in the form of American Express points.
These are frequently tipped by This is Money and the experts we speak to due to their versatility, as they can be converted into airline air miles, hotel points or retail gift cards through Amex itself.
One of the best ways of earning these points is through everyday credit card spending on American Express cards, one of the best of which is the Preferred Rewards Gold Credit Card.
It comes with a 22.2 per cent rate on purchases but a representative APR of 56.6 per cent, thanks to an annual fee of £140 due after the first year.
American Express’ Preferred Rewards Gold Card is one of the best air mile cards around
Holders earn one Amex reward point for every £1 spent on the card and 20,000 if they spend £3,000 in three months.
Another welcome bonus for those who haven’t held an Amex card in the last 24 months, it will also hand cardholders another 10,000 points if they spend £15,000 in the first 12 months.
However, this requires payment of the annual fee, although a pro-rata refund can be obtained if someone pays it, collects the bonus and cancels straightaway.
The card’s minimum payment is £25 but cardholders must clear their balance if they wish to avoid interest charges eating into their reward earnings.
6. Best card for overseas spending: Halifax
With the country in the midst of both winter and a nationwide lockdown to slow the spread of the coronavirus, summer holidays to sunny destinations feel a long way away.
However, some might be hoping to dispel the gloom by planning for a potential post-vaccine getaway, which often entails figuring out the best way to beat foreign exchange fees.
Fee-free credit and debit cards are a key addition to any travellers’ wallet to avoid overseas ATM and purchase fees
One of the most popular options is Halifax’s Clarity Credit Card. It offers a purchase APR of 19.9 per cent and charges no fees on overseas purchases or ATM withdrawals and uses Mastercard’s exchange rate, which is one of the closest to a ‘real’, or ‘mid-market’, rate that everyday consumers can get.
However, cash withdrawals abroad will still incur interest at 19.95 per cent from the time they are made, so cardholders planning on withdrawing a lot of cash might be better off using a fee-free debit card instead.
Its minimum payment is 2.5 per cent or £5 a month, whichever is larger.
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