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Store card rewards wiped out by fees and interest

Be wary when grabbing a store card saving

High-street shopping

Store cards offer attractive discounts

The high APR’s and lacklustre offers from store cards mean that any savings you might be able to make using them will be wiped out in months for those who stick to low minimum repayments, according to new Which? research.

Minimum repayments – which must cover at least interest, fees and charges plus 1% borrowed – are actively encouraged by some retailers such as Homebase, whose website states ‘…you can spread the cost for a longer period instead. You will simply pay us 4% of the balance each month (or £2, whichever is greater).’ But simply repaying the minimum on your balance could see the benefits of using the cards disappear after just two months, in some cases. 

The table below shows how long it takes to pay off a £250 net balance. The ‘tipping point’ shows at which point interest payments on a £250 net balance would overtake potential savings, discount or rewards offered by retailers for a £250 spend if you stuck to the minimum repayments.

Minimum repayments
  Representative APR Tipping Point Time with min payments
USC 30.9% 7 months 102 months
Evans 29.9% 2 months 101 months
Burton 29.9% 5 months 101 months
Dorothy Perkins 29.9% 5 months 101 months
Miss Selfridge 29.9% 5 months 101 months
Wallis 29.9% 5 months 101 months
M&Co 24.9% 10 months 93 months
Debenhams 19.9% 7 months 85 months
House of Fraser 19.9% 5 months 85 months
Topshop 19.9% 4 months 85 months
Topman 19.9% 11 months 85 months
Laura Ashley 18.9% 3 months 83 months
New Look 28.9% 12 months 59 months

Range of potential charges

Store cards, like credit cards, also come with a range of potential charges, including late payment, trace, dormancy and settlement fees. Late payment fees typically come to £12, as do those charged when you exceed your agreed credit limit.

However, all Santander cards also charge a £25 trace fee if you move address and fail to inform them, as well as a £10 credit balance fee if your account is in credit for three consecutive months.

There are also fees if you withdraw money using your store card. Debenhams, for instance, offers you a ‘cash advance’, but will charge you 3% or £3 (whichever is lower) in addition to charging you interest at a higher rate of 28.8%.

Benefits of using a store card

But while store cards come with high interest rates, potentially hidden fees and relatively unattractive offers, if you play by the rules and pick the right cards and you could get a handy bargain.

Topman and New Look offer the best introductory deals. Topman’s card offers 15% off your first purchase, while New Look gives 20% off your first purchase. The best deal for sale items is at Burton, where you’ll get a generous 10% off sale items throughout the year.

Some store cards also offer ongoing reward schemes, giving you points on your shopping. Best of the bunch is House of Fraser, which offers a reasonable three points per £1 spent in store and a competitive six points per £1 spent online. So, on top of the £10 welcome voucher, £333 worth of spending online will get you another £20.

It’s only worth taking a store card if you can guarantee to pay it off before the end of the interest-free period. Once you’ve grabbed yourself a decent discount, avoid using the card again or even cut it up. Otherwise, just stick to Best Rate reward, interest-free, low-rate and cashback credit cards when you’re hitting the high street to do your shopping this Christmas.

More on this…

  • Cashback credit cards – Rather than relying on one-retailer get cashback for all your shopping
  • Best-rate credit cards – If you can’t afford to pay back in full, stick to a low-rate card
  • 0%-on-purchases cards – Don’t rely on store buy-now-pay-later deals, use a 0% interest card instead
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