Money Buddy guide to … credit card features

With the choice of credit cards available, how do you decide which features you really need? Interest-free days, additional cardholders, rewards programs, balance transfers, introductory rates, promotions and special offers - the list seems endless. But what do all the features actually mean, and which should you look for when choosing a credit card?

Introductory or honeymoon rates and terms

Many credit card providers now offer an introductory or “honeymoon” interest rate card. All purchases made within a specified term following card issue - generally around six months - automatically attract this reduced rate.

Honeymoon rates can be as little as half the usual credit card interest rate so it can be financially rewarding to choose a card providing this feature. However, don't rely on this alone, as the standard interest rate may be much higher than average, cancelling out any initial benefits gained.

Balance transfers

Many credit cards also offer a reduced interest rate on credit balances transferred from another credit card. With this rate sometimes being as little as 0% for six months, savings can be made by transferring your existing balances to your new card.

Interest-free days

If you're planning on paying your credit card bill in full each month then consider applying for a card with interest-free days. These cards often have a higher interest rate than standard cards, however by paying the bill in full before interest is charged, you can avoid the extra cost.

Be aware, though, that cash advances are not included within the interest-free arrangement. Interest will be charged from the day the cash is withdrawn.

Rewards programs

Many providers now reward card holders with points which can then be redeemed for other products, such as airfares or shopping vouchers.

These schemes tend to come at a cost. You may have to spend up big before enough points are earned to receive a reward. The card can also attract a higher interest rate or higher annual fee.

Rewards schemes are suited to people who use their credit card regularly and pay it off in full before the end of each period.

Annual fees

Many providers have special introductory offers on annual fees. To attract new business they may waive the fee for the first year. Alternatively, the fee could be waived indefinitely on the condition that a certain amount is charged to the card each year.

If you're planning on using your card regularly then this option could be worth investigating.

Additional cardholders

If you require a card for another person on the same account make sure you can apply for an additional cardholder. Always read the fine print, though, as some providers will charge, not only for the additional card to be issued, but also an extra annual fee for the additional card.

Always be aware that if the additional card is abused in any way it is the account holder who is responsible for any charges made. If in doubt, don't apply for an additional card.

Store cards

Store cards are issued by specific shops and offer their own features such as extended guarantees, extended interest-free periods and other special offers. However, interest rates are generally much higher than standard credit cards.

What works for me?

Henry is a regular credit card user, spending up big each month but not paying the bill in full when issued. After investigating his options he decided on a credit card with a lower interest rate and a special deal that waives the annual fee . As an added bonus, Henry's card also offered 0% on balances transferred from other cards which allowed Henry to consolidate his debts onto the one card.

At 18 years old, Felicity was applying for her first credit card. She wasn't intending to use the card very regularly, but just wanted it in case of emergencies. A card with interest-free days appealed to Felicity as she was confident she would be able to pay each bill in full before her interest-free days expired.

Finally, Scott was also looking for a credit card. He required the card solely for cash advances up to the credit limit, for short periods at a time. Scott decided on a card with a low annual fee from a major financial institution, making it simple and convenient to withdraw his required funds. He also ensured that the cash advance fee was low and the special interest rate charged for cash withdrawals was reasonable.

Each credit card user is different but they all have one thing in common: they want to keep their costs to a minimum. Investigate thoroughly and you'll find the credit card with the features that are right for you.

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