10 credit card perks put to the test
In such a fiercely competitive market it's now common for credit card companies to lure us into buying their cards with perks, rewards and loyalty schemes.
Here Moneywise takes a look at 10 credit card perks and asks if these are just cheap gimmicks or if they really offer added value.
1. CASHBACK CREDIT CARDS
Credit cards that offer cashback will give you money back based on how much you spend on the card – this is either paid monthly or annually into your account.
Deemed as one of the top perks on credit cards, rates usually start at around 0.5%, but some providers offer a higher rate of 1%. For big spenders this can be a boon, but they aren't suitable for everyone.
If you don't pay your bill off every month, for example, the interest rate you pay on your balance will quickly wipe out the benefit of the cashback. And you could also lose your entitlement if you make a late payment or exceed your credit limit.
But if a cashback card makes sense for you, first work out how much you are likely to spend on your card. Some credit cards offer better cashback rates the more you spend, while others have a ceiling for higher spenders.
If you've already got a cashback credit card, check whether your deal is still competitive. Many providers have slashed their cashback rates in the past year – if you've seen the rate on your card fall, consider switching to a better deal.
VERDICT: Great if you clear you bill every month, but pay attention to sliding rates
2. POINTS OR REWARD SCHEMES
These schemes work in a similar way to cashback, but instead of money, your credit card provider will give you 'points' that you can then redeem against other goods or services.
Point schemes are often offered on cards from supermarket retailers – and you'll get more for your points if you spend them in-store rather than elsewhere.
For example, Tesco, Sainsbury's, John Lewis and Marks & Spencer all pay 1% if you make your purchases in-store, according to Which?. However, if you spend your points elsewhere, the rewards drop to between 0.1% and 0.5%.
So are these schemes good value? It's debatable. According to a survey by Which?, almost one in two people with reward cards never redeem their points.
For the most part, this is simply because it takes such a long time to collect enough of them to buy anything worthwhile.
However, Martyn Saville, senior researcher from Which?, says: "Points or rewards schemes are definitely worth considering if you pay off your bill every month and frequently use a particular retailer.
"However, points are often worth more when you can swap them for events or days out rather than redeem them in-store."
He recommends shoppers compare reward credit cards with cashback deals, as the latter may be more generous and is definitely more flexible.
VERDICT: Good, but only if you spend a lot of money with one particular retailer
3. EXTENDED WARRANTIES
Retailers often sell extended warranties alongside electrical home appliances, and they make a staggering £900 million from them each year, according to Which?.
But these warranties are often overpriced and usually not necessary, so it's rarely worthwhile buying them. Most manufacturers guarantee goods for 12 months when you make a purchase.
In addition, the Sale of Goods Act states goods must be of satisfactory quality and 'fit for purpose' – this can apply for up to six years after the purchase in England and Wales, or five years in Scotland.
However, some credit cards now offer to double the manufacturer's guarantee if you pay with your card.
Nationwide, for example, offers a free 12-month extended warranty on many gas or electrical items costing more than £50, if you register them within 60 days.
This is the sort of benefit that you are highly likely to forget, so it's worth checking the small print on your card.
If you are on the hunt for a new card you may find this is a useful perk, but it shouldn't dictate your choice. As always, factors such as interest rates are much more important.
VERDICT: OK as a freebie, but don't let it dictate your choice of card
4. PURCHASE PROTECTION COVER
This type of cover will protect you against loss, theft or damage in the first weeks after a purchase – some card providers will cover you for up to 100 days, while others will only cover you for up to 30 days.
Cheaper goods might not be covered (the minimum value is usually between £50 and £100), but it depends on what level of cover your credit card company is providing, so check the small print.
Most people don't use their purchase protection cover, or aren't even aware they have it. The cover typically protects you in the event that you purchase an item on your credit card that is later damaged, stolen or lost soon after purchase.
Note that there is often a maximum limit on how much money you can get, and some policies have strict exclusions for certain types of damages.
On the upside, some cards – such as the Egg Money World MasterCard – cover you for purchases made abroad.
VERDICT: Useful, but beware the exclusions
5. FRAUD OR IDENTITY THEFT COVER
Banks are generally eager to market their fraud or identity theft cover. But while becoming a victim of ID theft or fraud is often time-consuming and stressful, the cover offered by the banks won't give you any additional protection on top of what you already have.
This is because any loss you suffer as a result of theft should be covered under the Consumer Credit Act.
This states that liability of up to £50 for unauthorised withdrawals or purchases lies with the cardholder – this technically means that, even if you have been negligent with your PIN, you are only liable to pay the first £50 of the losses incurred.
In practice, most banks will cover this liability anyway. If any money is stolen after you've informed your provider of the theft, then you're not liable for any of the money.
"As long as you're not careless or fraudulent, you should be covered for any unauthorised use of your card," says Saville.
Identity theft protection offered alongside your credit card, often just provides you with a helpline should you become a victim. But you can also receive free advice from the government's fraud prevention service, CIFAS.
And if you're worried that someone may have tampered with your card, you can check your credit report for a one-off £2 fee with one of the three main credit agencies, Experian, Equifax or Callcredit.
VERDICT: MAY give you extra peace of mind, but it's relatively useless
Probably the most popular credit card perk, the airmiles scheme, generates reward points whenever you spend on your card. These can then be swapped for free flights in real miles.
As with all loyalty schemes, you need to spend a fairly large amount on your credit card to reap any substantial rewards.
However, if you're a big spender and like to travel regularly, this could be a great way to kill two birds with one stone. And you can even earn miles as you fly by paying for your flight by credit card.
However, the rewards of an airmiles credit card differ from company to company, so shop around to find the best deal.
"Also remember that airmiles schemes don't include flight taxes, so you will still have to pay for those," warns Peter Harrison, cards and cash payments sales manager at moneysupermarket.co.uk.
Saville adds that, besides the airmiles, these cards may not be good value for money. "Airmiles cards often have an annual fee," he says. "This makes them poor value unless you spend a huge amount on your card."
VERDICT: Great, but only if you use your card a lot and travel regularly
7. CHEAPER PETROL
Using the right credit card to fill up your tank could help offset the cost of petrol and save you money. Petrol costs are one of the main bugbears of motorists in the UK, so many credit card providers offer cards that aim to reduce the burden of higher fuel prices.
Tesco, for example, allows cardholders to collect points on fuel purchases. And you can collect points at Sainsbury's forecourts and BP garages with a Nectar card.
Saville says: "If you use a particular petrol retailer regularly it's probably worth getting a card that will make it cheaper. However, it's not generally good for borrowing money on, as interest rates tend to be uncompetitive."
Another way to save money on your petrol is to use a cashback credit card, which could earn you up to £200 a year, as long as you pay off the card balance each month and depending, of course, on how generous the terms of the offer are and how often you frequent the same forecourts.
VERDICT: Useful if you need it, but don't compromise on the interest rate
8. EVENT CANCELLATION COVER
If you buy a ticket for an event and then find you can't make it on the day, you'll be unable to claim your money back from the event organiser. But some credit card providers offer 'missed event' cover.
This protects you against life's little problems, such as getting stuck in traffic on the way to an event or falling ill the night before.
However, it's worth noting that if your tickets cost more than £100, you will automatically be covered under the Consumer Credit Act, as long as you bought the tickets with your credit card.
This means that by law the card provider will have to refund you if something goes wrong.
"It may be worth having this cover if the card itself is competitive or comes with other perks, but it's not worth much in its own right," says Saville.
VERDICT: Useful for purchases under £100
9. TRAVEL INSURANCE
Some credit cards also have free travel insurance as a perk. However, most credit card travel insurance policies tend to be very basic.
The insurance usually won't cover you before you travel or when you arrive at your destination, but will literally only cover you for the duration of your journey.
Before you rely on this 'free' insurance, check it covers everything you need – you may find it still makes sense to buy your own comprehensive plan.
A comprehensive travel insurance policy should provide medical and health cover for an injury or sudden illness abroad; 24-hour emergency service and assistance; and personal liability cover in case you're sued for causing injury or damaging property.
It should also cover lost and stolen property as well as cancellations. Remember that you might have to take out extra cover for activities such as scuba diving or horse riding.
"Read the terms and conditions before relying on free insurance to cover you," says Harrison.
VERDICT: Cover usually can't be relied on
10. FOOTBALL POINTS SCHEMES
If you're mad about football, the MBNA England FC card (16.9% APR) offers 15% discount on all purchases at the offical England online store.
Cardholders can redeem their points against a wide range of merchandise including footballs, shirts and vouchers.
But the length of time it takes the average person to save for most of the products on offer is often too long to keep the momentum going, so many people end up forgetting to redeem the points they have accumulated.
"If it's free, you might as well have it, but not if the APR is higher or if you could earn more with a cashback card," says Saville.
VERDICT: Fun, but it should never sway you to sign on the dotted line
A report containing detailed information on a person’s credit history, a record of an individual’s (or company’s) past borrowing and repaying, including information about late payments and bankruptcy. It also includes all applications a person has made for financial products and whether they were rejected or accepted. Your credit report can be obtained by prospective lenders to determine your creditworthiness.
Used by the holder to buy goods and services, credit cards also have a monthly or annual spending limit, which may be raised or lowered depending on the creditworthiness of the cardholder. But unlike charge cards, borrowers aren’t forced to pay the balance off in full every month and, as long as they make a stated minimum payment, can carry a balance from one month to the next, generating compound interest. As the issuing company is effectively giving you a short-term loan, most credit cards have variable and relatively high interest rates. Allowing the interest to compound for too long may result in dire financial straits.
Cashback credit cards
These reward you with a small percentage of cash back on your total spend on the card, either each month or annually. Cashback cards carry high APRs and ONLY work if you pay your balance off in full every month. If you miss payments and have existing credit card debts, leave these well alone.
This is used to compare interest rates for borrowing. It is the total (or “gross”) interest you’ll pay over the life of a loan, including charges and fees. For credit cards where interest is charged at more frequent intervals, the APR includes a “compounding” effect (paying interest on interest). So for a credit card charging 2% interest a month (equating to 24% a year), the APR would actually be 26.82%.