Promotional periods and perks aside, here's another way to make your credit card work harder for you...
When it comes to choosing a credit card, it's all too easy to assume that rates are the only thing that matter. Low APRs and other add-ons often hog the limelight, with questions such as, `How long is the promotional period?', `What benefits do I get?' and, `How much is the APR?' at the forefront of our minds.
However, one question we rarely ask ourselves is, `How long is the interest free period on my credit card?'
You may not think that it makes much of a difference, but the longer the interest free period on your credit card, the more time you have to pay off your bill before interest starts accruing on the balance.
This is particularly noteworthy if you pay off you balance in full each month, as interest-free periods can range from nothing up to 59 days.
So which credit cards are the worst offenders when it comes to interest-free periods?
Here are five of the worst:
Provider and credit Card | Interest-free period | Typical APR | Other benefits/promotions |
|---|---|---|---|
First Trust Bank Visa Option 3 | 0 days | 14.9% | n/a |
Lloyds TSB Advance MasterCard | 0 days | 11.9% | 0% on new purchases for six months. 4.9% on balance transfers for 12 months (3% fee). £100 minimum new spend applies. Online applications only. |
45 days | 16.9% | 0% on balance transfers until August 2009 (3% fee). 0% on purchases for first three months. Anniversary balance transfer offer. | |
45 days | 15.9% | 4% on purchases for the first three months. 1% thereafter. | |
Smile Classic Visa | 46 days | 16.9% | 0.5% cashback on purchases. |
As you can see, when it comes to interest-free periods, if you pick the wrong credit card, you could end up paying more than you bargained for.
Credit Cards Without Credit
For example, both Lloyds TSB and First Trust Bank don't even offer an interest free period on the credit cards mentioned above. This means that interest is charged from the day the transaction is applied to your account, regardless of whether you pay your balance off in full every month.
Both are designed for people who don't pay off their balance each month, offering a lower standard APR than their other credit cards to compensate for the lack of an interest free period.
However, you could get a better deal by shopping around, so these cards are best avoided, even if you usually rollover a balance each month.
Rather sneakily, Lloyds TSB also insist that you spend at least £100 within the first three months in order to take advantage of the 0% purchase offer (otherwise the interest-free period is halved).
This means that if you if you transfer a balance and don't pay it off within 6 months, interest will start being charged on any new money spent after the promotional period ends, a trick called negative payment hierarchy.
Credit Squeeze
Also at the lower end of the scale are Egg, which landed themselves in hot water over the cancellation of 161,000 credit cards earlier this year. Egg only provides its customers with 45 interest free days on its Visa credit card.
Fools may have also noticed that Capital One have brought back their Capital One Cashback credit card. In many ways, it's a great card as it offers a generous 4% cashback on all purchases until 1st August 2008, and 1% cashback thereafter. However, it also comes with a shorter interest free period of just 45 days.
So which cards should you turn to if you're looking to maximise your interest free period?
Here's a quick look at some of the best credit cards when it comes to interest free periods:
Provider and Credit Card | Interest free period | Typical APR | Other benefits/promotions |
|---|---|---|---|
59 days* | 15.9% | 0% for 10 months on balance transfers and purchases (3% fee for balance transfers applies). | |
59 days* | 15.9% | 0% for 10 months on balance transfers and purchases (3% fee for balance transfers applies). | |
Intelligent Finance Flat Rate MasterCard | 59 days | 8.9% | n/a |
Co-operative bank Think Credit Card | 59 days | 12.9% | Charitable donations offered on first purchase. 7% on balance transfers for first six months. Special deals with ethical partners. |
Co-operative Bank Clear Credit Card | 59 days | 12.9% | n/a |
* The 59-day interest free period will only become relevant once the introductory 0% for 10 months on purchases period expires.
As you can see, the Halifax Bank of Scotland (HBOS) group are cream of the crop when it comes to interest free periods, with three of their credit cards all offering a table-topping 59 days interest free credit.
With the two 'All in One' credit cards, you can get get both a 10-month period for 0% balance transfers (subject to a 3% fee) and a 10-month 0% period for purchases. That means you won't have to worry about being stung by negative payment hierarchy during the promotional period.
The Co-op's `Think' and `Clear' credit cards also offer 59 days interest free credit, plus the peace of mind that your money is ethically invested. Both come attached with an APR of 12.9%.
Walking The Credit Middle Ground
If a few days doesn't make too much of a difference, a good alternative to the Capital One Cashback card is the Capital One Platinum Card, which offers 56 days interest free credit and 0% on both balance transfers (a 3% fee applies) and purchases until 1st March 2009. It comes with a typical APR of 9.9%.
Finally, Abbey's newly launched Zero credit card also offers 56 days interest free credit, with the added advantage of 0% for 6 months on both balance transfers and purchases.
Unlike the other lenders mentioned above, it also includes no fee for transferring your balance and there are no extra handling charges to pay if you use your card abroad. Abbey's typical APR is 18.9%.
The Abbey credit card may provide a shorter balance transfer period than its rivals, but it is certainly a good card to consider if you can afford to pay off your balance in a shorter period of time or are a regular jetsetter looking to take advantage of the overseas perks.
So, with all these points to consider and more, choosing a credit card which provides the best value on all sides may leave you feeling a little bit dizzy. But do your research, weigh up all your options, and you should be able to ensure your credit card fits perfectly for your needs.
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