Credit Cards: Are they a life saver, a necessary evil or a tool of financial oppression?
These plastic objects shouldn’t be feared. They are simply financial tools that allow small short-term loans to be made quickly.
They do, however, need to be understood and respected. If you mismanage your credit card you could get locked into a debt spiral.
Credit cards make certain transactions easier, such as online purchases, renting cars and booking accommodation.
Without a credit card, I wouldn’t have been able to order Red Hot Chili Peppers tickets or have flowers delivered to my sister’s office in Australia – all from the comfort of my desk. They make payments easy when you’re travelling and offer a certain amount of credibility with vendors.
So, now that you are at ease with the idea of getting a credit card, the next logical question comes up:
Which credit card should I get?
I’ve compiled some information to help you make that decision.
* Disclaimer: There are many credit cards available to the South African public and it is a herculean feat to compare them all. For the purposes of this comparison, credit cards where evaluated against each other that had a minimum monthly income requirement of between R5000 – R28000.
How to qualify for a credit card
Of the credit cards compared, this varies from R3 000 (GoBanking.co.za) up to R12 500, with the big four banks (ABSA, FNB, Standard Bank and Nedbank) all requiring a minimum income of over R10 000 a month to qualify for a card.
Costs and interest earned
To me the most important factors in determining the best credit card are the following:
- Purchase interest rate
- Card fee
- Positive interest earned
When it comes to Interest Rates, most of the credit cards come with a rate of about 17%. Virgin’s interest rate goes up to about 17.5% whereas the Discovery interest rate ranges from 17.1 %- 22.1%. The Absa Gold Card has a rate of 17.5% and the Nedbank Gold Credit Card has a rate of 17.9%. With FNB the interest rate is personalised and worked out based on individual criteria.
Positive Interest earned varies across institutions and also across positive balances. Certain institutions, such as Nedbank, don’t even offer interest on positive credit balances. Here your decision shouldn’t really be swayed by the interest rates because the interest earned on positive balances is rather minimal.
In order to earn interest (Silver DiscoveryCard at 0.1%, FNB at 0.25% – 1.5% and Absa at 0.2%) you need to have a positive balance on your credit card.
With the Virgin Credit Card, one earns 2.5% per annum with a positive credit balance. This interest rate is calculated over a period of one year. This means that with each month of a positive credit balance you would earn ± 0.2% interest on your Virgin Credit Card balance.
Most credit cards offer some form of travel insurance and lost card protection. Beyond that the various institutions offer benefits based around their brand strengths: Kulula, Discovery and Virgin give you access to their air miles programmes.
The DiscoveryCard offers the most value for Discovery health members, including rewards. FNB offers eBucks, Go Banking gives you 5% money back on PnP purchases and ABSA has BP Fuel Master Express incentives.
Benefits and special offers connected to your credit card have the potential to add real value to your financial life, but should only be allowed to factor into your decision if you are certain that you will be taking advantage of these benefits. There’s no point in earning air miles if you have a fear of flying and never travel.
At a glance, and due to the extensive options available, it appears somewhat difficult to assert that one credit card offers better value than the rest.
As with all financial instruments the key to choosing the best option for you is knowing how you intend to use it.
Think carefully about what you need from a credit card, do the leg work and most importantly consult with your financial advisor on the best options available to you.[tip title=”moneysmart tip”]Rewards programs are not always free. Check your fees and read our article How Does Your Bank Reward You? A Comparison[/tip]
PLEASE NOTE: This comparison is not intended to favour one institution over another. As with any major financial planning decision, moneysmart strongly recommends that you consult with a licensed and registered financial advisor to advise you on the best product suited for your individual needs.