Imagine a banking product that has no monthly account fee, carries no charges when you make purchases, offers 55 days’ interest-free credit, rewards you for using the product by giving you discounts or loyalty points, and then throws in free travel insurance.
Not only does it exist, but the banks are so keen for you to have this product they are offering to approve your account in seconds and give you additional interest-free periods.
With the investigations into banking costs, customers can get their own back by getting clever with the way they use their cards. Banks make a large percentage of their credit card profit from people who do not pay off their full balances at the end of each month — which is why they can afford not to charge the customer fees for in-store transactions and can offer 55 days’ free credit. So, take advantage of their offer but make sure they don’t make money out of you. But there is a warning: research shows that people with credit cards are more likely to overspend, so it takes discipline to stop yourself from lining the banks’ pockets.
The interest game
Firstly, you must pay off the full balance owing at the end of each month. You may choose to deposit money into your credit card upfront to cover your purchases, but then you do not benefit from the 55 days’ interest-free credit and most credit cards, Virgin Money aside, offer a fairly poor interest rate on deposits.
If you really want to work the system, you could put the money you expect to spend on your credit card into a one-month fixed deposit. Nedbank is paying out 6,25% on any deposits more than R1 000. You could let your money work for you while you are working your credit card. If you expected to spend R15 000 on your card in a month, that money in a fixed deposit could earn you R78. That is about R1 000 a year. In the meantime, you are also receiving 55 days’ free interest, which at 17% for credit card debt is saving you about R200 a month or R2 400 a year.
Transact for free
When you use your credit card to purchase something from a store or on the internet, there is no fee. The banks make money out of the merchant, but for the card holder the transaction is effectively free. If you make 20 purchases a month, you would save on average R50 a month, or R600 a year, compared with a debit card. You can also use your credit card to draw cash, but you will pay the same fee as with a normal debit or ATM card. You can link your credit card to internet and telephone banking, although again you will pay the normal transaction fees.
Rewards
Banks actually give you things for free for using their credit cards. Most offer some reward programme linked to their credit cards and there is now a proliferation of stand-alone cards with rewards attached such as Discovery, Woolworths, Kulula and SAA Voyager. The more you use the card, the more rewards you receive. Some of the banks do charge an additional fee to be on the rewards programme and for others it is combined in their annual fee. So make sure you are going to use the rewards before you sign up.
Annual fees
Although there are no monthly fees for credit cards, most do carry an annual fee. But, with the competition brought on by Virgin Money, these may soon be a thing of the past. Currently, Virgin Money and Pick ‘n Pay Go Banking have no annual fees on their credit cards. Other banks can charge anything from R75 to R1 000, so it is worth shopping around. Don’t be fooled into signing on for the fancy platinum one which costs you three times more in annual fees. Remember, you are trying to keep costs low, not impress the shop assistant.