Cliff D'Arcy rounds up the best 0% on purchases credit cards available at the moment.
This article was originally sent to Fools as a standalone email in our 'The Good, The Bad and The Ugly' series.
In today's the Good, the Bad and the Ugly column, I'm going to sing the praises of a particularly attractive piece of plastic known as a `0% on purchases' credit card.
To avoid paying interest on an ordinary credit card, you must pay off your balance in full every month. The bad news is that a typical credit card charges a yearly interest rate of around 16.5% APR. This means that a steady balance of £1,000 would run up interest of £165 over the course of a year. Then again, the Bank of England's base rate is just 5.25% a year. Thus, most credit cards charge an interest rate more than three times higher than the base rate!
If you pay off an ordinary credit card in full, you can avoid interest for up to 59 days (depending on the card). This consists of the maximum 31 days in a month, plus a further 28 days to clear your balance. So, you can benefit from over eight weeks' interest-free credit if you time your transactions to hit your account just after your statement date.
Of course, when interest-free credit is on offer, you should aim to spread the cost of your purchases over as long a period as possible. This is where the delightful 0% on purchases credit card comes into play. These `flexible friends' enable you to avoid interest over lengthy introductory periods. Indeed, in some campaigns, card issuers have enticed customers with 0% offers lasting up to eighteen months.
The great thing about 0% on purchases credit cards is that you don't have to pay off your bill in full every month to avoid interest. Thus, even if you pay only the minimum monthly repayments (MMRs) on these cards, you don't pay any interest until your introductory 0% offer expires. However, if you miss a payment or pay late, then your 0% deal can be scrapped overnight. Therefore, I'd recommend setting up a direct debit or standing order to cover your MMRs.
According to the Fool's independent, unbiased credit-card search wizard, there are 84 different 0%-on-purchases credit cards, offering interest-free credit lasting from three to twelve months. These cards top the tables today:
Best Buy 0% cards for purchases
Card | 0% period | Typical rate for purchases (% APR) |
|---|---|---|
HSBC MasterCard | 12 months | 15.9 |
(Fool special offer!) | 12 months | 15.9 |
Barclaycard Platinum Life of Balance MC/Visa | 10 months | 14.9 |
Bank of Scotland One MasterCard | 9 months | 9.9 |
HSBC Premier MasterCard | 9 months | 11.9 |
Unison MasterCard | 9 months | 14.9 |
Capital One Platinum MasterCard & Platinum Cashback MasterCard | Until 01/11/08 | 9.9 |
MINT MasterCard | Until 01/10/08 | 12.9 |
The nine cards listed above are the only cards which offer 0% on purchases for longer than six months (without expensive catches), making them our clear winners for interest-free spending.
Finally, although 0%-on-purchases credit cards are very useful, they are not a cure for an over-spending problem. Indeed, switching to a 0% card in order to keep running up debts is a daft move. Instead, head for our Get Out of Debt centre without delay!
More: The Best 0% Balance Transfer Credit Card In Town | 0% Transfers Still Make Sense
*This article first appeared in an email.