South Africans have cottoned on fast to the saving — not spending — prospects of credit cards, reports Belinda Beresford
More and more South Africans are using their credit cards to save as well as to spend. Banks report rising numbers of customers using their plastic as de facto savings accounts to take advantage of the almost unique South African policy of paying interest on positive balances on credit cards.
Using your card as a savings account may seem strange if you are used to spending to your credit limit. But the interest rates offered if you are in the black on your card make it an extremely attractive proposition compared to more traditional saving plans.
So much so that there is an increasing trend toward keeping two credit cards — one for spending and one for saving.
Standard Bank card division head Peter Abbott says some customers are millions of rands in credit on their cards, taking advantage of a sliding scale of interest rates. This varies from 5,5% if you are less than R5 000 in the black, to 13% if your card is loaded with more than R100 000.
Absa offers 10,75% on positive balances on credit cards, compared to interest rates of between 5% and 12,5% on a gold savings account at the bank. First National Bank credit card customers earn 11,25% on positive balances — more than double the lowest interest rate on an instant access Bobsave account. Nedbank and Permanent Bank customers with a standard credit card earn 10% on positive balances.
South Africans appear to be undergoing a conversion to credit card savings. Abbott said the last 12 months had seen higher growth in customers using credit cards as a savings account than those using it as a lending facility.
The efficient way to use plastic is to identify the money you want to have instantly accessible as opposed to long- term savings, and put as much of it as you can on to your credit card. Then spend, spend, spend, using the card and leaving cash and the cheque book at home.
There are a number of fringe benefits to using your credit card extensively.
Not only are the interest rates generally better than for instant access savings accounts, but usually there is no need to build up a minimum balance to get the higher returns.
In addition to the better interest rates and instant access to your money, a credit card offers you the opportunity to borrow with an interest-free grace period of up to 55 days. It is also possible to get bank cheques printed at ATMs.
If you are a member of a loyalty scheme, then switching to more frequent usage of your credit card allows you to accumulate points faster.
Abbott says Standard Bank has seen customers increasingly use their personal cards for business transactions in order to take advantage of the Voyager scheme. The lure of loyalty points has also led to some more unusual applications. Some customers have bought cars using their credit cards, with all the benefits that accrue.
Absa’s card division general manager Pieter van Wyk says the increase in customers putting credit balances on their cards had occurred naturally as the word had spread about the higher interest rates.
But before wielding that plastic, remember the interest you’ll earn by saving through your credit card is vastly outweighed by the penalty you pay if you go into the red and don’t clear the outstanding debt by the due date. At Absa, interest penalties are 25,25% on a gold card and 26,75% on an ordinary card.
Penalty interest on Standard Bank cards varies between 23,75% and 27%. At First National Bank Firstcard holders pay 28%, while Premier card users pay 26%. A standard Nedbank credit card charges 27%.
Another point to remember is that if you withdraw cash from your credit card when you are in debit, interest is charged immediately. The same applies if you use your garage card to buy petrol.