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Credit cards with benefits

Would you say ‘No’, if a complete stranger handed you £200 a year with no strings attached? How about £100? £50?

That’s why I use credit cards. The right ones insist on giving me free money for the privilege of sitting in my wallet and funding purchases that I’m going to make anyway.

By smartly slaloming through the system, you can pick up special offers and free coins like Super Mario gobbling power-ups, and so earn a bit extra every year.

As long as you can follow the credit card house rules (see below) you merely need to choose the right tool for the job.

Turn your credit card into a smart card [1]

A credit card for every occasion

Whatever kind of credit card you’re after, it’s out there. Of course, we don’t want the loan advancing, wage-slavery inducing variety.

Here is a quick guide to the savvier weapons of choice:

Cashback cards
A small percentage of your spending is returned to you every year in cash. You should accept no less than 0.5% cashback and can earn up to 5% with a bit of extra effort. A 1% cashback rate would earn you £100, if you spend £10,000 that year.

Reward scheme cards
The same deal as cashback credit cards, but your pounds equal points and points mean prizes. Prizes like free flights, shopping vouchers and so on. Compare reward schemes versus cashback cards to see which is more worthwhile.

0% spending cards
Credit cards can fund a cheeky little saving scheme known as stoozing [2]. You spend as usual but on a card that offers 0% interest on new purchases. Make the minimum repayments on the card every month and save your accumulating cash in the best instant access savings account. Just before the 0% period expires, use the money saved to pay off the debt. The interest earned equals your profit.

Overseas spending cards
Spend abroad on commission-free credit cards to get the best exchange rates possible. It’s a lot easier than wandering around with a money-belt stuffed full of local currency – the international expression for “mug me”.

Special offer cards
Here some glittering freebie dangles like bait to hook you onto an otherwise uncompetitive card. Take the bait, do the bare minimum to bag the bonus, then ditch the card like Jerry mouse eluding the ponderous Tom again.

A few house rules on credit cards

Credit cards are great as long as you follow the rules.

The number one rule is do not get into debt [3]. If you run up a debt on a 0% card, for example, it should be matched by savings elsewhere. This way you remain debt neutral, since your savings offset your liability.

Do not fall into the credit card debt trap! Lenders hope that by giving you this ‘free’ money, you will eventually get sloppy, skip payments, and become another debt sucker. Don’t risk credit cards unless you’re as anally retentive about avoiding debt as a German politician in Athens.

Decided to sally forth to claim your share of lolly? Here are some rules I live by:

Choosing a credit card

Spending on credit cards

Managing your balance and credit limit

Hacks and hints

Again, there’s no shame in deciding you’d rather not take the risks of credit cards.

Wheezes like these are tasty extras for hardcore money hackers. They’re not essential for sound financial planning.

The best credit cards

The following cards are all highly competitive in their specialist category, at the time of writing.

You may well find offers that suit your circumstances better, depending on where you shop and the lavishness of your budget, so do hunt around.

Oh, and when choosing between simplicity and exception-riddled complexity, I’ve plumped for simplicity every time.

Cashback credit cards

Aim for a card that bags a cashback rate of 1% or better a year.

Favourite for cashback

Aqua Reward Credit Card [6]
Cashback: 3%
Max payout: £100 (spend £3334 to max the cashback)
Annual fee: 0
APR: 34.9% (representative)
Issuer: Mastercard

Best feature The amazing 3% rate.

Worst feature Low initial credit limits (most applicants get £250 – £500).

For a spending splurge

Barclaycard Cashback Credit Card [7]
Cashback: 6% for first 3 months, 0.5% – 2% after that
Max payout: £120 for the first 3 months. £75,000 annual spend limit
Annual fee: £24
APR: 24.6% inc fee (representative)
Issuer: Visa

Best feature 6% cashback on your five biggest purchases of the month, for the first three months, if you make 15 purchases in the month.

Worst feature It’s complicated. See below.

After Aqua 

American Express Platinum Cashback Credit Card [8]
Cashback: 5% for first 3 months, 1.25% after that
Max payout: £125 at the 5% rate. Unlimited thereafter (spend £2,500 to max the 5% cashback)
Annual fee: £25
APR: 18.5% inc fee (representative)
Issuer: Amex

Best feature 5% introductory rate for new customers. Great when you’re about to spend big.

Worst feature Amex is not accepted by some retailers. Always have a back-up card if you go the Amex route.

Alternative to Amex

Capital One Aspire World Credit Card [9]
Cashback: 5% for first 3 months, 0.5% up to £6,000, 1% £6-10,000, 1.25% above £10,000
Max payout: £100 at the 5% rate. Unlimited thereafter (spend £2,000 to max the 5% cashback)
Annual fee: 0
APR: 19.9% inc fee (representative)
Issuer: Mastercard

Best feature 5% intro rate for new customers. Good for the Xmas run-up or other big spending period.

Worst feature Complicated cashback tiers.

The commuter’s choice

Santander 123 Cashback card [10]
This tricky little number is well worth a look if you spend over £100 a month on petrol, rail travel, or London Oyster cards, or you can’t stay out of places like John Lewis and Debenhams.

Rewards and flights

For those who demand their backhanders in goods and services.

Favourite reward card

Amazon.co.uk Credit Card [11]
Reward: Amazon vouchers
1 point = 1p
Annual fee: 0
APR: 16.9% inc fee (representative)
Issuer: Mastercard

Best feature Essentially a 1% cashback card. It goes up to 2% when shopping on Amazon as £1 spent there equals 2 points.

Worst feature Can be beaten by rival rewards cards if you spend BIG at Tesco or Sainsbury’s.

Favourite free flights card

Lloyds Duo Avios Credit Card [12]
Intro bonus: 18,000 Avios points
Miles: 1 for every £1 spent (on the Amex version)
Annual fee: 0
APR: 17.9% (representative)
Issuer: Amex and Mastercard

Best feature Relatively simple, and good if you’re a low earner.

Worst feature There are better cards if you don’t mind fees but they need a massive spend.

Stoozing credit cards

To best arbitrage interest rates, you need plastic that combines a long 0% spending stint with rewards thrown into the bargain.

Remember: There will still be minimum monthly repayments. Set up a Direct Debit to ensure you make them!

Favourite 0% spending card

Tesco Clubcard Credit Card [13]
0% on spending: 16 months
Min repay: Greater of 1% of balance plus interest or £25
Reward: Tesco Clubcard points
Annual fee: 0
APR: 16.9% (representative)
Issuer: Mastercard

Best feature Other than the 0% period, Money Saving Expert [14] calculates that the Clubcard points make this a 0.75% cashback credit card.

Worst feature A relatively high min repayment, but it’s no biggie.

Alternative stoozing card

M&S Credit Card [16]
0% on spending: 15 months
Min repay: Greater of 2.5% or £5
Reward: 0.5% back in M&S vouchers
Annual fee: 0
APR: 15.9% (representative)
Issuer: Mastercard

Best feature As well as the 0% period, you get 0.5% back in M&S vouchers as a reward – that’s doubled to 1% for any spending done in M&S.

Worst feature No issues to report.

Prolong the stooze: Instead of paying off the debt when the 0% spending period expires, you can shift it to a 0% balance transfer card. It’s a stay of execution on the debt, enabling you to carry on racking up interest in your savings account. This only works if the balance transfer fee on the new card is less than your savings account interest rate (after tax). Remember to keep servicing the minimum payments and don’t put any new purchases on the 0% balance transfer card – it’s unlikely to give you 0% interest on new spending. You can keep deferring pay-back day like this for a while, though eventually large debts could hurt your credit score [4]. At some point, you’ll need to take the money out of your savings and start again.

Cheap travel money

We’re after a specialist credit card that doesn’t tack commission onto its foreign exchange rates.

Favourite travelling companion

Aqua Reward Credit Card [6]
Commission: Europe 0%, World 0%
Cash withdrawals: Fee: 3% (min £3),
Cash interest: Yes, even if paid off in full
Annual fee: 0
APR: 34.9% (representative), Cash: 39.95% – 59.95%
Issuer: Mastercard

Best feature 3% cashback even abroad.

Worst feature The low credit limit (most applicants get £250 – £500).

Alternatively

Halifax Clarity Credit Card [17]
Commission: Europe 0%, World 0%
Cash withdrawals: Free,
Cash interest: Yes, even if paid off in full
Annual fee: 0
APR: 12.9% (representative), Cash: 12.92 – 21.95%
Issuer: Mastercard

Best feature Free cash withdrawals. Still best to avoid though as you’ll pay interest regardless of direct debit settings.

Worst feature No concerns.

Special offers

Grab the shiny thing, then toss the card away.

Quick hit and run

Barclaycard Freedom Rewards Credit Card [18]
Freebie: £30 shopping voucher
Condition: Earn 10,500 points by spending £500 in the first 3 months.
Annual fee: 0
APR: 18.9% (representative)
Issuer: Visa

Best feature Low hurdle freebie and good range of retailers.

Worst feature The reward scheme is complex and points are generally worth less than half a penny each.

Eyes on a bigger prize

American Express Preferred Rewards Gold Card [19]
Freebie: £100 gift card or BA flights
Condition: Spend £2,000 in the first 3 months
Annual fee: £125 (free in first year)
APR: It’s a charge card. £12 fee if you don’t pay the balance off
Issuer: Amex

Best feature Fly to major European capitals or spend the gift card in the likes of Amazon or M&S.

Worst feature You pay taxes on the flights. Around £30 per person.

Closing credits

So that’s our pick of the best credit card deals available. We hope you find a useful flexible friend among that lot. If anyone has a better choices then please let us know below and we’ll add it in.

Do remember we are not financial advisers. The above pointers are not any sort of personal recommendation as to what you should do. The only thing we’d recommend to everyone is do your own research.

Take it steady,

The Accumulator