What are the worst credit cards to use to do your Christmas shopping? Neil Faulkner investigates.
High APR credit cards
Almost all credit cards have high standard interest rates. If you are a saver or investor and get a return of 6% per year that is supposed to be a good rate, so reverse that and get into debt – and triple the rate to the average credit-card APR of more than 19% – and you're talking a seriously wealth destroying cost of borrowing.
Everyone should avoid paying the standard rates on a credit card, but some are even more revoltingly high. The Capital One Classic credit card, for example, charges 35% APR, almost double the average.
It gets worse. The Aquis Bank credit card charges 30% to 60% APR, and the Vanquis Bank credit card 40% to 60% APR, with the rate dependent on your financial status. I've rounded up the pointless point 99s, by the way.
There are times when getting a card with a high rate is justifiable. If you're unable to get a credit card or start a credit history because you're too young, sometimes higher rate cards may be the only ones available to you. And so long as you pay off the bill completely every month, you should be able to move up to a better deal in no time without paying a terrible price for it.
Otherwise, if your debt situation is so bad that this is the only rate you can get, you would be crazy to borrow further. It's time to bite the bullet and get some debt advice to find your best option, either through National Debtline, Citizens' Advice or the CCCS (a charity which writes this free debt advice blog for lovemoney.com).
For the rest of us, there are far better cards for Christmas and beyond that have not just lower standard rates but great introductory deals too. These could be cashback cards, which I'll come to later, or a 0% on purchases deal. The latter will make any borrowing you have to do this December interest free for more than a year with the longest deals, which are 15 months with M&S Money (part of HSBC) and Tesco, and 14 months with Barclaycard.
Annual fees
Few credit cards charge annual fees any more, probably because users caught on to the fact that these cards are usually less a privilege and more like a rip off.
One card that still comes with fees is from private bank Coutts, for its wealthy customers. Coutts was recently fined millions by the Financial Services Authority for making investments it was selling seem less risky than they were and from inadequate sales training, among a list of seven “serious failings” in total. The Coutts Gold Card comes with a £90 annual fee. While it includes free family travel insurance, the value of its other benefits are rather harder to quantify, with some seeming more like marketing gimmicks for other Coutts products rather than proper plus points.
The Virgin Atlantic Black Account is actually two credit cards costing £140 per year, for which you hope to earn enough Virgin Atlantic air miles to recoup the cost of the fee and more, but I think you're going to find it very hard to beat getting a free, top cashback card.
Such cards are the Capital One Mastercard cashback card, which pays higher amounts the more you spend, up to 1.25%, so it is particularly good for high spenders earning £15,000 or more. It is also useful for anyone to use this Christmas, since it pays an introductory 5% in the first three months.
Alternatively, the Virgin Money Charity card is the highest-paying of the simple cashback cards paying a flat rate, which is 0.8% on all spending. You don't have to donate that to charity, despite the name of the card.
Prepaid cards
Finally, we come to prepaid cards, which are cards that you load money onto for making payments. With these you usually get few, and stingy, benefits, you have to pay fees to withdraw money, and often even more fees to shop with them or to load money onto them. You usually have to pay a fee just to receive the card too.
Few prepaid cards will give you the protection of a debit or credit card, which both confer greater protection in the event that money goes missing.
These cards are touted as suitable cards for people struggling to get a bank account or a debit card, such as bankrupts, because you can have your wages paid on to them. They're also said to be for people who don't want an overdraft thrown at them, so that they can more easily manage their money.
However, both Barclays and Co-operative Bank offer basic, free bank accounts to undischarged bankrupts and others, with a debit card and no overdraft facility. This beats paying £10 for a cashplus prepaid card, for example, followed potentially by a £5 monthly fee and up to £2 for every ATM withdrawal, and possibly other costs too, depending on your situation and the deal you choose.
Although the cashplus card is one of the few that could offer you purchase protection and it appears to be the best prepaid card on offer, it still seems a waste when there are free, alternative solutions to try first. With all those ongoing charges, this is not a card that you can get just for Christmas and then stash away in a drawer.
More: compare credit cards through lovemoney.com | Five reasons a balance transfer card isn't for you | Eight tips to clear your credit-card debts