Money: Cash or credit? How to pay right

If you’re ever flummoxed over which is the best payment method to use for various goods, here’s some expert advice

When tour operator Thomas Cook went bust recently, people who paid for their holiday by credit card were automatically protected, but those who used other payment methods weren’t. Helen Saxon, banking editor at MoneySavingExpert, says how we pay matters...

CREDIT FOR £100+

“Credit cards are good for buys over £100, as they offer legal protection called ‘Section 75,’” Helen explains. “The card lender is jointly liable, along with the retailer, if something goes wrong. That’s why people who booked their trips with Thomas Cook on credit cards were able to claim money back from their card provider when the firm collapsed.” Helen advises only using credit cards for planned purchases. Making small, everyday purchases on your card can add up. “Always ensure you pay it back in full once your statement arrives, otherwise it’s easy to get into a debt spiral, paying back money borrowed plus interest.”

DEBIT FOR DAILY USE

“Most of us keep tabs on budgets and spending via our current accounts, so using debit cards for daily use is the smartest option,” says Helen. We’re protected for purchases when paying by debit card, too. “It’s called the ‘chargeback’ scheme and it’s run by your card issuer,” explains Helen.

“It means you can call your bank and reverse a payment if, say, a company you’ve purchased from has gone bust.” Time limits apply (check your bank’s website) and you must attempt to contact the retailer first, which is why credit cards are better for big buys.

CASH FOR BUDGETING

“If you’re unlikely to need to dispute a purchase, cash is best – so for a bus ticket, or a quick bite to eat,” says Helen. “If something you bought is faulty, you can return it with a receipt, but that is your only way of reclaiming your money.” Another benefit is budgeting, as when cash is gone, it’s gone. “You also won’t get confused by ‘pending’ transactions – money not taken immediately from your account. App-based banks like Monzo and Starling have real-time balance updates, though, which include these pending transactions.”

PAYPAL FOR EASE

“PayPal’s strength is convenience,” says Helen.

“It’s possible to switch between different payment methods (you can link your current account and credit cards to PayPal), but you’re not usually covered under Section 75 like with cards, since you’re paying PayPal rather than the retailer.”

BACS FOR LOVED ONES

“If you send money to the wrong account by the electronic transfer system BACS, there’s very little the bank can do to get it back,” says Helen. “They’ll contact the bank you’ve sent it to and ask them to contact the account holder to see if they’ll return the cash, but if they won’t, there’s little you can do.” Best for those you know, then.