It's the season of goodwill to all men, but just how generous are charity credit cards? We find superior substitutes.
With Christmas Day less than seven weeks away, our annual Yuletide spending spree has already begun. Indeed, we Brits will spend around £53 billion over the Christmas season, according to banking payments group APACS. Of this total, over £22 billion will be spent on debit cards, and nearly £12 billion on credit cards.
In other words, we'll spend almost twice as much on debit cards in December as we will on credit cards. Given the UK's massive personal-debt mountain, paying by debit card seems the more sensible option -- especially as most credit cards charge yearly interest rates of 16.5% APR or more. However, there are several advantages to paying by credit card. The first is greater consumer rights in the event that goods are faulty or fail to arrive. I explained this valuable protection -- which also applies overseas -- in Great News For Cardholders.
A second advantage to paying by credit card is by timing your transactions well, you can enjoy between 45 and 59 days of interest-free credit. For example, delaying your purchases until just after your statement date can give you almost two months' grace before paying for items. However, this interest-free period vanishes if you don't pay off your bill in full every month. Therefore, I'd recommend always paying your entire balance by monthly direct debit or standing order.
The third benefit of paying by credit card is that you can earn as you spend, either for yourself or good causes. If you're feeling generous, there are 75 different charity credit cards which channel donations to good causes, according to Fool partner Moneyfacts. Most are issued by the ethical Co-operative Bank, followed by Halifax/Bank of Scotland and MBNA.
So, simply by switching your spending to a charity credit card, you can donate more to your favourite good cause. These credit cards usually offer a one-off initial donation when you start using them, plus a percentage of your spending is donated to the charity each year. However, most charity credit cards charge above-average rates of interest. Thus, if you don't pay off your monthly bills in full, then high interest rates will more than wipe out your donations. In other words: beware!
Here are the most generous Best Buy charity credit cards, according to Fool.co.uk's independent search wizard:
Best Buy charity/donation credit cards
Card | Typical APR (%) | Initial donation (£) | % of purchases | Donation on £500pm (£) |
|---|---|---|---|---|
PDSA Visa | 15.9 | 25 | 0.25 | 40 |
Cancer Research UK MasterCard | 16.9 | 20 | 0.25 | 35 |
NSPCC MasterCard | 16.9 | 20 | 0.25 | 35 |
Shelter Visa | 12.9 | 20 | 0.25 | 35 |
Lifeboats MasterCard | 16.9 | 15 | 0.30 | 33 |
Comic Relief Visa | 17.9 | 6 | 0.50 | 36 |
For the record, veterinary charity PDSA has the highest initial donation at £25, compared to just £6 for Comic Relief. Then again, the Comic Relief card pays the highest percentage donation, so it wins through for bigger spenders. For a monthly spend of £500, first-year donations vary between £33 and £40, but slip to £15 to £30 in later years.
Although I'm a fairly charitable person, I never spend on a charity credit card. That's because there's a far more attractive way to give to good causes. By combining a leading cashback credit card with tax relief from HM Revenue & Customs (HMRC), you can be far more generous at no extra cost. Take a look at my next table to see what I mean:
Best Buy cashback credit cards
Card | Typical APR (%) | Cashback | Cashback on £500pm (£) |
|---|---|---|---|
18.9 | 5% for 3m on up to £4k, then 0.5%/1%/1.5% | 110 | |
15.9 | 4% for first 3m, then 1% | 105 | |
Egg Money MasterCard | 7.9 | 1% | 60 |
Source: Fool.co.uk's independent search engine
Of the three cashback credit cards listed, I use the Capital One card, as MasterCard is accepted in more outlets than American Express. Indeed, I spent perhaps £6,000 in three months on mine, earning cashback of £240 in just one quarter. Marvellous!
I mentioned tax relief earlier, so here's how this works. Charitable gifts made by taxpayers under the Gift Aid scheme automatically receive 22% tax relief. Thus, a donation of 78p becomes £1 after the taxman chips in 22p. Higher-rate taxpayers can then reclaim a further 18p via their tax returns, reducing the cost of a £1 gift to just 60p.
Thus, the £105 cashback earned over the course of a year with our Capital One card becomes £134.62 under Gift Aid. Higher-rate taxpayers can claim a tax refund of 18% of this total, or £24.23, which further subsidises their generosity.
So, if you want to be generous this Christmas, then use Gift Aid and a Best Buy cashback card, not a donation credit card. Your favourite good causes will welcome the extra money, and it won't cost you a penny!
More: Give Me (Interest-Free) Credit | Earn 5% Cashback | How To Cut The Interest On Your Card