The Discounts And Reward Points Con!

We explain why 'the sales', reward cards, reward credit cards and shopping vouchers are bad for your wallet.

In The Worst Ten Financial Products I said that you have to be wary of products that are sold aggressively, e.g. through TV advertising, because it's usually the most profitable products that get the big marketing budgets. If a product is particularly profitable for the seller, then it's less likely to be a good deal for the buyer.

It's not just TV advertising, it's all advertising or promoting. You have to ask yourself why the seller is putting so much effort into telling you why you should buy that particular product.

The sales

Consider a high-street deal that sounds fantastic and has advertisements all over the place telling you to buy it. It might be a credit card that has a very attractive-looking 0% interest rate. Or it might be a poster in a shop window saying 30% off certain items, or all items.

But companies don't just give money away . If they're having a give-away, or what seems like an amazing offer, it's because they expect to claw back more money from you elsewhere. With a credit card, for example, the claws might be catches in the small print. Yes, the 0% deal lasts a good twelve months, but you have to pay a 3% fee upfront.

With high-street sales, the catch is even more subtle. You are lured in to the shop by large discount signs, but, because you're buying things more cheaply, you end up buying more of them. You buy so much that you spend more than you would have done had there been no discount at all.

Let's say you spend £50 on one full-price shirt. You'll then think 'Jeez! That's my whole clothes budget. No more!' But if you get 30% off you think 'Everything is so cheap I should buy more stuff before the deal goes!' So you buy six pairs of underwear, a couple of t-shirts, a skirt or trousers and a few shirts. Your total bill comes to £80 or £100.

The thing is, you do the same again the next month, and the next, so you don't actually save money but you spend an awful lot more without even realising it.

Thankfully, this particular problem is easily avoided. You do the Foolish thing and set yourself a budget before you go shopping, and you stick to it!

Vouchers, reward cards and reward credit cards

I also don't like vouchers, reward cards or reward credit cards, because they discourage people from shopping around. Even taking points and vouchers into account it is almost always cheaper to compare prices and shop elsewhere. If you don't have time to compare prices, you'll still usually be better off if you shop online or go straight to a cheaper retailer, perhaps an independent one.

A much more Foolish alternative to reward credit cards is a cashback card, as you can spend your cashback anywhere. I argued for them in Even Better Than Stoozing.

You can see a very small selection of cashback credit cards in our credit card centre. (The 'fly and buy' card is currently in our cashback cards section in error; it should be with the reward cards. Sorry!) For more choice and to compare the whole market, use the 'Search All Credit Cards' tab.

> Compare credit cards.
> See our cashback credit cards.
> Credit Card Freebies