1% cashback or 0% spending saved for a year?

GlynG · 19 November 2009 at 5:51PM

I've been doing the former, via Egg Money (which I've had for a few years and so isn't applicable for the £1 monthly fee it now has). What I'm wondering is whether I might be better off applying for a Tesco 0% credit card (if they'll have me, not sure my credit rating is that fantastic) or else a 9 month 0% card with my bank (RBS - they do seem keen to sign me up to one of these everytime I call in for anything) and using that instead.

I could save up the cash that would have paid it off in an ISA / high rate instant access savings account and then take it back out again to pay the credit card off when the time approaches to do so. So long as it earns over 1% in this time I would be better off, yes? Anything I'm missing or any downfalls with this compared to the cashback?

The_Enforcer · 19 November 2009 at 8:02PM

I believe this to be stoozing. I certainly wouldn't use an ISA for this as you would lose the tax free status of the funds when you had to pay it back. Use more 'permanent' savings for an ISA.

A high-interest savings account might be more worthwhile, even if the return might be lower. You could put a lump sum into an instant access account and then drip feed it into a regular savings account to earn a higher rate of interest on some of the funds, but you'll need to find a credit card with a 0% period of over a year in order to do that.

In general, this is not the best time to be stoozing, as the interest rates are low and some of the longest 0% cards charge an initial fee, which wipes out a lot of the potential interest.

anselld · 20 November 2009 at 11:54PM

Nothing fundamentally wrong, but bear in mind ....
(a) If you save monthly instead of paying off, your money is only earning interest for an average of 6months (on Tesco) or 4.5 months for a 9month card. A bit less if you allow to pay off in good time at the end.
(b) Tax, esp if you are higher rate payer, but even so there is no tax on cashback, 20% on savings.

So lets say Tesco card used, money saved at 3% gross for 12 months max would be approximately 1.2% return over a year ( 3% x 6/12 x 0.8) Might just work on a 12m+ interest free card but anything less would be doubtful.

Oh, and that all assumes you can get a large enough credit limit for a year's worth of spending!

apt · 21 November 2009 at 9:24AM

It would also work if you had a 6 or 9 month 0% purchases deal. But whatever deal you have, you should stop spending on the 0% card and move your current spending back to the 1% cashback card for the last 3 months of the 0% deal. But make sure you do not spend the money needed to pay off the card in full when the 0% deal ends.

1% cashback or 0% spending saved for a year?

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