Credit Cards: A Powerful Financial Tool
Credit cards are a divisive financial product. While some people appreciate the perks they offer, others find the idea of debt off-putting. The reality is that, when used responsibly, credit cards can be a valuable asset in your financial toolkit.
One significant advantage of using a credit card is the protection it offers under Section 75. This law allows you to claim a refund from the card provider if goods or services are faulty, not as described, or fail to arrive. However, this protection only applies if the purchase exceeds £100.
To make the most of a credit card, it's essential to choose the right one for your needs, have a plan for repaying the balance, and avoid overspending. It's also wise to check your eligibility for a card before applying, as this won’t impact your credit history.
Here are some of the best credit cards currently available on the market, along with who they suit and what to watch out for.
Best for Travel
If you travel frequently, either for work or leisure, a credit card that doesn't charge transaction fees for foreign currency spending is a must. Most credit card providers typically charge around 3% on non-sterling transactions, which can add up quickly. They often charge even more if you withdraw cash from an ATM.
However, there are cards available that offer no overseas fees and allow you to withdraw cash without incurring additional charges—useful in emergencies. Your exchange rate will be determined by the card issuer, such as Mastercard or Visa. When making a payment at a machine or ATM, always choose to pay in the local currency rather than pounds sterling, as the merchant may offer a less favorable exchange rate.
Our pick:
Lloyds Bank’s Ultra Credit Card (lloydsbank.com) comes with no foreign exchange fee and no fee on cash withdrawals. It has a relatively low interest rate of 12.9% variable, plus 1% cashback on purchases for the first year, after which it drops to 0.25%. Be aware that interest is charged on cash from the moment you withdraw it until you repay it.
Best for Big Spends
For large purchases, 0% purchase credit cards can be useful. These cards allow you to spread the cost of expensive items over an interest-free period, which is ideal for things like family holidays or home renovations. However, it's crucial to clear the balance within the 0% period to avoid hefty interest charges.
Even though no interest is added during the 0% period, you still need to make minimum repayments to avoid late fees and potential revocation of the 0% deal. Before applying, check how long your 0% period might be, as some cards offer a guaranteed period while others may offer shorter terms based on your credit history.
Our pick:
TSB’s Platinum Purchase Card (tsb.co.uk) offers 0% interest on purchases for up to 26 months, but you might get a shorter 0% period of 22 or 19 months depending on your credit history. The regular interest rate is 24.9% APR variable.
Best Cards for Rewards
Reward cards provide a return on everyday spending. This is often in the form of cashback, which can reduce the balance you need to pay or be credited directly into your bank account. Some cards let you accumulate points that can be converted into shopping vouchers or flights, such as through the Avios scheme.
You can earn rewards on regular purchases like fuel, food, or public transport, or on big one-off spends like furniture or holidays. However, if you don't pay off the balance in full each month, the interest charges may outweigh the value of the rewards.
Our picks:
For a simple cashback card, consider the American Express Cashback Everyday card (americanexpress.com). It currently pays 5% cashback, up to a maximum of £125, during the first five months for new customers. Beyond this, the regular rate is 0.5% up to £10,000 a year and 1% above that.
Airline points are a popular reward, allowing you to build a pot of points you can exchange for flight tickets. To collect these, look for credit cards linked to specific reward schemes or airlines, such as Avios.
Our pick:
The American Express Preferred Rewards Gold card is a good choice due to its flexibility. You can swap points for flights with British Airways and Virgin Atlantic. New cardholders receive 20,000 bonus points after spending £3,000 in the first three months, and the annual £195 fee is waived for the first year. You also get double points on airline spending and four free airport lounge passes annually.
If you don’t fly often, you can still use points for gift cards and other rewards, including paying for eligible purchases on your card statement and shopping online at retailers like John Lewis, Selfridges, and Amazon. After the first year, you may want to switch to another card to avoid the annual fee eating into your rewards.
Best Balance Transfer Card
If you have unpaid credit card debt, a balance transfer card could help you manage it more effectively. These cards allow you to transfer existing balances and give you a long 0% period to pay them off. However, many cards charge a balance transfer fee, such as £3 for every £100 transferred.
Some cards offer a 0% period with no balance transfer fee but often come with a shorter 0% term. Make sure to pay off the balance within the 0% period to avoid interest. If you don’t, you might end up transferring the balance to another card once the 0% rate expires.
You must also make at least the minimum repayments to avoid being moved to a high standard credit card rate.
Our pick:
Barclaycard (barclaycard.co.uk) offers up to a 36-month balance transfer card with a 3.15% fee—£3.15 for every £100 transferred. There's also a Barclaycard with a shorter 0% period of up to 13 months but with zero balance transfer fee. You need to transfer within 60 days of opening an account.
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