Sainsbury's launches top low-rate credit card

The number of low-rate credit cards has fallen over the last five years - even though the base rate is at a record low.

Low-rate credit cards can be fantastic financial tools. They can save you money and make your life easier.

Low-rate cards all have interest rates below 10%, and they charge the same low rate regardless of whether you’re spending or doing a balance transfer.

Only four cards

Sadly the number of low-rate cards has fallen dramatically in recent years.

Back in 2007, there were 14 credit cards offering a standard rate below 10% whereas there are now only four!  That’s pretty shocking given that the Bank of England’s base rate is at 0.5%.

Good news

But I do have a bit of good news. One of those four low-rate cards is new and it’s a market-leading product from Sainsbury’s. It’s called the Sainsbury’s Low Rate Credit Card.

It comes with a 6.9% interest rate which is way lower than the average UK credit card rate of 17.3%. Even better, there is no balance transfer fee.

So if you took out this card, you could transfer a debt from another card and only pay 6.9% interest on the debt. And if you used the card for a purchase, you’d only be charged 6.9% too.

You’ll need a Nectar card to qualify for this credit card, but they’re easy to get if you don’ t have one already. Head over to the Nectar website to find out how.

You’ll also need a strong credit rating to be eligible. If your rating is decent, but not excellent, you may be offered one of these cards but with a high interest rate.

0% cards

I think I can guess what you’re thinking. Why transfer your debt to a card that charges 6.9% when you could transfer this debt to a 0% balance transfer card?

The first problem with 0% cards is that the 0% period will come to an end sooner or later. 23 months at the longest, at the moment.

At that point, you’ll either start paying a much higher rate – perhaps 18% - or you’ll have to transfer your debt to another 0% card. That’s a hassle and there are no guarantees that you’ll be able to get another 0% card when your current interest-free period ends.

Fees

The other big issue is that 0% balance transfer cards charge a fee – typically around 3%. Low-interest cards don’t charge a balance transfer fee.

Now it’s true that a 3% fee seems cheaper than a 6.9% interest rate, but it doesn’t always work out that way. Let’s look at a couple of examples:

Example one

Let’s imagine you owe £3,000 on your credit card and you want to transfer that debt to another card. Once you’ve transferred that debt, you plan to pay off your debt via monthly instalments of £600.

You’ve narrowed down your choice to the Sainsbury’s card or the Barclaycard 22-month Platinum Visa card. The Barclaycard is a 0% balance transfer card with a 22 month interest-free period. It charges a 2.9% fee.

If you went with the Barclaycard, you’d pay an £87 fee and no interest.

However, the Sainsbury’s card works out cheaper. You won’t pay a fee and you’ll only pay £45 in interest. The interest bill is low because you’re paying off the debt relatively quickly.  As you pay off a chunk of debt each month, the interest bill for the following month falls.

By contrast, Barclaycard’s 2.9% fee is charged on the full initial debt . It makes no difference how quickly you pay off your debt.

Example two

In this example, you can only afford to pay off your debt at £200 a month.

With the Barclaycard, the cost is exactly the same as in Example one – the £87 fee.

But with the Sainsbury’s card, the cost is higher than in Example one. You’ll have to pay £140 in interest.

Here are the results in a table:

When low-rate cards are best

These examples show that low interest cards are especially attractive if you can pay off your balance transfer debt pretty quickly.

And regardless of how long it takes you to pay off your debt, low rate cards make your life simpler. You can use one card for everything and you won’t have to keep switching your debt from card to card.

Three other cards

Before I finish this article, I should compare the Sainsbury’s card with its three low-rate rivals:

Four low-rate credit cards

I think the Sainsbury’s card is the most attractive as it has the lowest rate. However, it’s worth noting that the Sainsbury’s rate is variable. So Sainsbury’s could increase the interest rate next week if it wished.

However, the Co-op Platinum Fixed Rate card has a fixed rate for the next five years.

I’m pretty confident that the rates on the three variable rate cards will stay unchanged for a year or more – that’s what’s happened in the past – but I can’t give any guarantees. 

So if you want to be absolutely sure that your interest bill won’t rise,  the Co-op card could be the one for you.

But for most people, the top low-rate card must be the Sainsbury’s Low Rate Credit Card.

More on credit cards:

The 0% credit card that improves your credit rating

Top credit cards for poor credit

The credit cards that reward spending

The cheapest balance transfer card around

Why the best balance transfer card just got better