Spending on plastic can bring rewards and be safe way to pay
PLASTIC MONEY is immensely convenient, not only in size but in providing credit funding and protection against poor goods and services. If well chosen, it can bring significant benefits and ensure savings are made when spending abroad.
There are three popular forms of financial plastic:
Debit card where the money comes directly from the user’s bank or building society account and acts as validation for cheques.
Credit card where there is a built-in interest free period and the user only needs to repay part of the debt.
Charge card where the balance needs to be repaid in full each month.
There is also the pre-paid card where money can be loaded, usually for overseas purchases, and can be in a range of currencies including sterling.
According to Mintel 2017 research, in the previous three months 82 per cent of UK adults had used a debit card with chip and pin and 49 per cent on contactless whilst a credit card had been used on the same basis by 53 and 45 per cent respectively.
The concept of a credit card was first suggested by Edward Bellamy in his novel,
published in 1887. It was effectively created as an air travelcard in 1934 with the first modern version launched by Bank of America in 1958.
MasterCard was introduced in 1966 and Barclaycard became the first credit card in the UK in 1966 with the BankAmerica card renamed Visa a decade later.
Charge cards arrived in the 1950s in the US. Made of cardboard, they were designed to pay restaurant bills at the end of each month.
Today 32.3m have one or more credit cards, up from 31.4m in 2016. Around 15bn card payments are effected in the UK annually, worth £647bn in 2016. Since January 13, European Commission rules have prohibited suppliers from imposing a surcharge for using plastic.
Before then, many would disguise such a fee as ‘administration’ and charge far more than the card processing cost. Airlines were notorious for making such fees.
According to Moneyfacts, just one debit card provides rewards. The Classic Plus current account offered by TSB, part of the Spanish-owned Sabadell Group, is fee-free but requires a minimum £500 monthly funding. Each month £5 can be earned when at least 20 debit card payments are made, as well as a further £5 if two direct debits are held.
Charge cards are offered by Allied Irish, First Trust in Northern Ireland and American Express. Only the latter offers free purchase protection which is up to £20,000 for 90 days.
Its Green Card costs annually £60 and Platinum £450 with both bringing benefits such as insurance for lost and delayed luggage and flight delays or cancellation, as well as free extended warranty on most household appliances.
It is still possible to receive money back on credit card expenditure. Fee-free American Express ‘Cashback Everyday’ rebates five per cent, which is capped at £100, on purchases for the first three months and then pays 0.5 per cent for £5,000 worth of transactions and at one per cent over that level.
The exception is purchases effected at warehouse retailers where the cashback rate is kept at 0.5 per cent.
Its Platinum card costs £25 annually but caps the initial five per cent at £125, followed by one per cent on £10,000 purchases and at 1.25 per cent above that level.
Harrods Bank became Tandem Bank in January and offers a free-free credit card which pays 0.5 per cent. Spanishowned Santander rebates 0.5 per cent with two credit cards: All in One and World Elite.
Each month they cost £3 and £15 respectively with the latter bringing savings on travel and hotels. Smile, owned by the Coop, rebates 0.25 per cent on its Classic card.
Asda’s card, administered by Creation Financial, has a free MasterCard with a voucher scheme which can be spent in store. It rebates one per cent for purchases in Asda and 0.2 per cent elsewhere. Both NatWest and The Royal Bank of Scotland pay one per cent on supermarket expenditure and 0.5 per cent elsewhere.
John Lewis also provides a voucher worth £5 for 500 points with one point earned on each pound spent in store. M&S Bank, owned by HSBC, awards two points per pound spent for the first year and one point in successive years with its Reward Plus card. Several other providers offer points plans, such as Bank of China with 10 points per pound spent and Sainsbury’s Bank with Nectar points. Tesco Bank gives five points for £4 spent in store and one point per £8 elsewhere.
Money to spend on Amazon is available with the NewDay Amazon Platinum, which is a free card. For each £2 spent, it pays 1.5 points if spent on Amazon and one point elsewhere. The Co-op Bank gives one point for £2 spent in two of its sections and £3.33 elsewhere.
If air miles appeal, Virgin Money – which may merge with Clydesdale and Yorkshire banks – pays 1.5 flying club miles for each pound spent with its Atlantic Reward Plus card (£160pa) and 0.75 miles per pound with its feefree Atlantic Reward card.
The British Airways Amex card brings one Avios point per pound spent but a more generous payment of 1.25 Avios points for the same sum can be obtained with Lloyds Bank’s Avios Reward Amex whilst its MasterCard version gives 1.25 points per £5. The BA card is free and the others cost £24 annually.
Five store credit cards are available: Argos, Karen Millen, New Look, Oasis and Warehouse. Holders gain a variety of benefits such as a 15 per cent initial discount in store or online with Oasis and a 20 per cent welcome voucher at Warehouse.
A key benefit in using a credit card is the extra protection offered under the Consumer Credit Act 1975. Under section 75, the first named card holder can claim for faulty goods or services provided the transaction is between £100-£30,000.
Many select a credit card for the benefit when spending abroad as several remove the foreign currency loading which can otherwise cost three per cent.
Yorkshire Bank, founded in Halifax in 1859, introduced just such a card last June. Named ‘B’, not only does it remove the foreign exchange fee for purchases but allows access to competitive foreign exchange rates and is free.
Other free credit cards with no foreign loading worldwide are Barclaycard Platinum Travel, Creation Everyday, Halifax Clarity, Nationwide Select, Post Office Platinum, Saga, Santander Zero, Tandem and Virgin Money Travel.
Cards with the facility which charge include Lloyds Avios (£24pa), NatWest/Royal Bank of Scotland Reward Black (£84pa) and Santander’s All in One (£3pm) and World Elite (£15pm).