Free cards to come to an end?

Many other card issuers are likely to follow the lead of Sainsbury’s Finance (GSO/Getty) The era of free credit cards could be coming to an end after Sainsbury’s Finance last week launched a mainstream card with a monthly fee.

Sainsbury’s Gold card costs £5 a month and is aimed at holidaymakers. It offers family travel insurance, which Sainsbury’s claims is worth up to £250 a year, no foreign exchange fees or cash advance fees in Britain or abroad.

Private banks monthly fees

Customers of private banks and those who have prestigious black or gold credit cards, such as those offered by NatWest or Coutts Private Bank, pay a monthly or annual fee for their card. Benefits for these private banking customers typically include access to airport lounges, concierge services and airmiles.

However, of the mainstream deals, only Capital One and Egg Money levy yearly fees of £18 and £12 respectively on their World Mastercards, but this cost is in effect cancelled out by the cashback reward scheme — provided you spend enough.

End of an era for free cards

David Black at Defaqto, the data firm, said: “Credit card providers are facing a number of hits on their established income streams and I am in little doubt that we will see deals become less attractive — either in the form of higher interest rates, new charges or less generous introductory offers and rewards.

“I would therefore expect to see more cards levying a monthly or annual fee.”

The Sainsbury’s Gold card charges 9.94% on purchases and balance transfers and offers double Nectar reward points on Sainsbury’s shopping, although there are no introductory 0% offers available.

While the card literature states customers benefit from interest-free cash withdrawals, this applies only if you clear your balance in full each month — otherwise you will be charged a punitive 24.9% from the day you withdraw the money.

If you want to avoid credit card fees while abroad, Justin Modray at Candid Money, the financial website, likes the Halifax Clarity card, which has no foreign currency loading or cash withdrawal charges. There is no annual fee and it charges 12.9% on purchases and cash. Avoid ATM withdrawals as you are charged interest immediately.

Nevertheless, the Sainsbury’s card offers a good deal for families and couples who require annual worldwide travel insurance as it provides cover for two adults and up to six children and also personal baggage and winter sports cover.

Figures from Candid Money show that buying a similar policy would cost at least £60, which is the annual cost of the card. It is less attractive if you are single, though, as you can buy similar cover for about £35 a year, said Candid Money.

Modray said: “Customers should be aware that, while the cover offered by the card is comprehensive, the policy excesses on the travel insurance are about £100 to £150.

“This is not excessive but it means you are unlikely to make a small claim compared with policies with excesses in the region of £50.

“I can see more mainstream credit card providers following this example and launching paid-for credit cards that offer things like travel insurance.

“By buying insurance at wholesale prices, providers can charge monthly fees while still offering good perceived value.”

However, you should always check the level of cover and the excess of any travel insurance deal very carefully and establish its true worth with a quick search on a price comparison site before signing up.


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