One Good And One Bad Credit Card
Read about a great deal for both balance transfers and purchases, and a terrible one to avoid as well!
I'm not going to beat about the bush, Lloyds TSB has introduced a credit card with a nasty catch. Avoid its Platinum Mastercard Credit Card. I've also found a rare card to be positive about: Tesco's Clubcard Credit Card.
A bad credit card
Lloyds' platinum card offers 0% interest on balance transfers for nine months. As with virtually all balance-transfer credit cards, you have to pay a percentage of the transfer in fees. In this case it's 3%, which is on the high side. But that's not the real problem.
Thing is, in order to benefit from the nine-month deal on balance transfers, you have to make a purchase of at least £100 within the first three months. The problem with this is that Lloyds' credit card has a negative payment hierarchy. This means that if you have a balance transfer of £1,000 and you spend £100 in purchases, you'll pay off the purchase last. All this time, your purchase will be accruing debt interest, because it's only the balance transfer that is interest free. (Read more about this dreadful trick in Watch Out For That 0% Credit Card!)
Although the card includes 1% cashback on purchases made in the first three months, this cashback is more than eaten up by the extra interest you'll pay, which in this case a massive 15.9% APR (typically). So don't let that gimmick fool you!
A good credit card
Now let's look at a better card. Tesco's Clubcard Credit Card has a 12-month 0% balance-transfer deal with a much more acceptable 2% fee. Like most credit cards, you're not obliged to make a purchase on it. All this makes it one of the very best balance-transfer cards available.
However, the same card has a great deal on purchases too. All Tesco purchases for 12 months are interest free. If you're a Tesco shopper, this is great news. Throughout the year you can make purchases at Tesco using this credit card. At the same time, you should save the same amount of money in a savings account. Just before the end of the deal you pay off the purchases, but in the meantime you'll have earned loads of interest! So you'll actually have made money from your credit card.
What's more, you earn 1.25 Tesco points for each £1 you spend at that supermarket. It doesn't amount to much, but it's better than a kick in the teeth!
As both the transfer and purchases deals last the same time, 12 months, you can safely use the card for both Tesco purchases and for balance transfers. However, make sure you save up and pay off all the purchases before the end of the deal. And, as always, don't forget about your transferred balances! Pay them off as soon as you can.
Don't use this card for non-Tesco purchases, as you'll have the same negative payment hierarchy problems as with the Lloyds card. You do get some Tesco points for non-Tesco purchases, but they're not worth it! Seriously! If you're looking to make interest-free purchases in other shops, you'll find that there are more suitable 0% on purchases credit cards available to you.
Finally, Tesco has a similar card, called the Bonus Credit Card. This doesn't have Tesco points, but it pays back a twelfth of the interest you've paid during the year. However, as you'll be using your credit card Foolishly (I hope!), you won't be paying interest anyway, so this deal won't help you. Stick with the Clubcard.