Are store cards a danger or a good deal?

Holly Thomas / 13 June 2016

A look at the benefits and potential pitfalls of using store cards.

Loyal shoppers who visit their favourite stores time and time again might be tempted to take out a store credit card which comes with perks, including eye-catching discounts.

Such cards can be a good way to get money off your shopping bill if you are making purchases anyway and if you pay off the balance in full every month. But they can also encourage extra spending for those who get carried away with the lure of a reduction in the price.

But the real catch is for those who can’t afford to clear the debt each month. There will be hefty interest charges applied to the account that are typically much higher than those charged by regular credit card companies.

12 ways to get a discount when shopping online.

High interest rates

Interest rates on store cards range between 25% up to as much as 30%. For example, retailers Argos and Dorothy Perkins charge 29.9%. This compares to the average rate of 18.9% on a typical credit card.

There are extra charges if you miss a payment, go over your limit or pay late. A penalty charge of around £12 a time will be added on top of the interest charges, meaning costs will soon spiral, negating any savings made through member discounts. 

Where you cannot clear the whole balance, it is important to remember to at least cover the minimum repayment to avoid these extra fees. 

But if you don’t expect to be able to clear the debt, you would be better off switching to another card.

Cutting up a card will not cancel it. Find out more...

Get rewarded

If you do like to use a credit card, rather than your debit card or cash for payments, and are disciplined about repaying the balance each month, then there are much better deals available.

Choose a card with a lower interest rate. If you are looking to get discounts and  are a fan of internet shopping, you could join a cashback website. They receive fees from service providers and retailers for referring customers to them. The cashback sites pay at least some of this fee to the customer as a reward for their custom.

When it comes to shopping, you need to start with the cashback website, log into your account, and click through to whatever retailer you want to shop with. Even though you will now be on the retailer's own website, it will record that you have entered from your cashback account and log any purchases.

You will still receive your item directly from the retailer, but you also get a reward from the cashback website.

As with the store cards, remember not to use the discounts as an excuse to overspend and don’t just choose a retailer because they are part of your cashback scheme as the same item may be cheaper elsewhere – even when you factor the cashback in. 

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The opinions expressed are those of the author and are not held by Saga unless specifically stated.

The material is for general information only and does not constitute investment, tax, legal, medical or other form of advice. You should not rely on this information to make (or refrain from making) any decisions. Always obtain independent, professional advice for your own particular situation.