Tips for Picking the Best Credit Card


Credit cards are something that many of us use and about half of us have outstanding debt on our credit cards. It is really important to make sure that we are using the right credit card to suit our needs. Many of us are not aware that there are different types of credit card and the one that you pick can make a big difference to how much you gain from your card.

Cashback/rewards card
If you always repay the money you owe on your card, in full, each month, then this sort of card could be good for you. What it does is gives you some sort of reward depending on how much you have spent. This could be a percentage cashback which is credited to the card to pay towards the next bill, vouchers, rewards points or things like that. What is offered will vary depending on the card issuer and therefore it is wise to check and compare them.

If you are getting reward vouchers or points then make sure that it is something that you will make use of. It can sound great in the information about the card, but think about whether it really is something you will use.

You also need to be careful that you do not justify buying more than you need because you get rewards or vouchers. The amount that you get back will only be a very small percentage of what you spend so only use the card as normal and see any cashback or rewards as a bonus. You also need to make sure you do pay off the full balance each month as the interest charged on these cards tends to be higher than that on a standard card and outweighs the benefits that you get form the rewards.

Interest free card
There are a few companies that offer an interest free credit card and these can be useful in some circumstances. For example, if you need to buy a new white good and do not have the money, you could use the interest free card to buy it and then make sure that you repay what you owe before the interest free period ends.

It is really important though to make sure that you do repay everything before the interest free period ends. Once it ends you will be charged interest and it can be higher than on many other credit cards and so you could end paying a lot more than you would with a standard card.

Normal card

If you tend to only repay the minimum each month, then finding a card which has a competitive interest rate is the best that you can do. Then you will not be being charged more than necessary for what you owe. It might be tempting to go for an interest free card, but the rates do get very high once the free interest period ends and transferrin a balance to a new card at this point can have charges associated with it which makes it an expensive thing to do.

So it is wise to think about how you use your credit card so that you can pick the one which will suit you the best. Once you have made that decision then you will be able to look at the cards of this type and compare them. It is important to compare the interest rates to see what you will pay should you miss a repayment but also at any other fees or charges they have. Also look at other factors as well such as who the lender is and whether you are happy using them. It can be wise to look at some reviews, both of the card and the card issuer to see whether that impacts your decision.

It is important to be flexible as well because you may find that the card you are using may not always be the best one for you. Therefore, you may need to think about changing cards every so often so you are always taking advantage of the best deal. Every six months or so it is good to research again and see whether there are any cards that would suit you even better. It might feel like a lot of work but it can really worth it with the money that you can save or even gain from doing so. Once you have had a go, it will be much easier the next time and that will help you to do it more quickly next time. If you calculate how much you save from doing it, this could motivate you to be more likely to do it some more! You could even start to do it with other financial products you have, insurance, and utilities and you could end up saving a significant chunk of money. The process is the same for them all and so it should not be too tricky.

All About Compound Interest


Compound interest is something which many people do not have a good understanding of. It is wise to know what it is as it can make a big difference to your finances.

What is Interest
Firstly it is important to understand what interest is. Most people do know what it is but it is worth making sure you are fully clear on the meaning. Interest is something which is either paid by banks to savers or charged by banks to debtors. With saving, you will put money in the bank and as a reward they will give you interest on it. They want to encourage you to save as they use your money to lend out to those that want loans. This is usually only when money is put into a savings or deposit account of used to buy bonds. The interest can either be a fixed amount for a certain amount of time or it can vary. If it is variable it means that the bank can change the interest rate down or up when they wish and they will often do this in response to changes in the base rate made by the Bank of England. While the base rate is low, the interest rate on savings tends to be low as well as it tends to be lower than the base rate.

With loans, especially payday loans, the interest rate tends to be higher than the base rate. Like savings you will be either charged a fixed rate for a certain period of time or a variable amount depending on when the lender sees fit to change the rate. Like savings, the rates can vary quite considerably between lenders. If you miss repayments on a loan then you could find the rate goes up or if you borrow more than agreed, in the case of an overdraft you may have to pay a higher rate of interest too.

What is Compound Interest
Compound interest is basically when you get interest on your interest. For example, if I put some money into a savings account and have the interest paid into that same account then next time interest is calculated it will include that interest that was paid in. This can make a significant difference to how much interest you get in the long term. Imagine if you get 4% interest a month on an account you set up for your child with £100 which they keep until they are 18 years old. They would have got £72 worth if interest if you drew it out each month. However, if you keep the interest in the account, they would have £103 worth of interest after the 18 years due to the fact that each year interest would be calculated on a greater sum. Although this is only a small difference it is much more significant if you have more money to start with. Let’s say you are able to invest £10,000 then simple interest will give you £7,200 over the 18 years but compound interest will give you £10,258. The frequency the interest is compounded will also have an effect. The above calculation assumes that it is done annually. However, it is possible to have it done monthly which would increase the interest to £10,520 or even daily which would increase it to £10,544. It is wise to not worry too much about the maths, but just to see the difference it can make. If you can find a higher interest rate, the difference can be even greater. At 10% interest with daily compound interest you will get £50,482 in interest but in simple interest where you withdraw your interest you will get just £18,000.

With debts we do not call paying interest on interest compound interest but it is something that can happen. If you have an overdraft, for example and do not repay any in a month, you will get charged interest which will be added to your debt. Then if you repay nothing again, you will get charged interest on the debt including that interest charge from last time. This will mean that you will be charged even more interest. It is less common in loans as often you have a payment schedule which charges you that months interest plus a repayment of some of the debt.

Why Compound Interest can be Great
So when you are saving money, you can see that by allowing interest to remain in the account you can make a lot more interest over a long term. Therefore, if you can afford to leave the interest in the account then it will grow and you will have a much bigger lump sum once you need to spend the money. It works better if you can find an account with a good interest rate but even if you are just making small gains, then it is worthwhile.