Credit cards: are supermarkets super value?

It’s not just your groceries that you can pick up at your local supermarket. How about car insurance, a personal loan or credit card? Financial services are becoming big business for the supermarket giants and Tesco has recently launched a new credit card. So is it worth applying or are you better off just sticking with bread, milk and fruit next time you make a trip to there?

Tesco’s new Bonus card is aimed at the 7.5 million credit card holders who are charged interest every month because they do not clear their balance in full.

Jim Macdonald at Tesco Personal Finance, said: “While much is offered to those who pay off their balance most months and who get the benefit of most loyalty programmes such as clubcard points or cashback, but borrowers have been largely neglected until now.”

The Bonus card will refund one month’s interest to customers, so they effectively only pay interest for 11 months of the year. The card also offers one of the longest interest free period on purchases and balance transfers – it runs until January 1 2007. There is a balance transfer fee of 2%, although the maximum charged is capped at £50. Once the 0% period is over cardholders accrue interest at the standard rate, which is 12.9%.

This is a great card for the first year as it is interest free for most of the time. However, while the 12.9% standard rate of interest is quite competitive, there are cheaper rates available so cardholders would be better off switching to another 0% deal once the introductory offer has come to an end. Alternatively, if you do not want the hassle of moving your balance over to different cards once or twice a year; consider a card that has a low standard rate.

Northern Rock’s Visa card has a rate of 8.8% and once the introductory offer is over on the Tesco Bonus card, this will work out cheaper. Figures from Moneysupermarket.com, a comparison site, show that if you make a balance transfer of £2500, spend £200 a month on your card and pay off £250 a month, you will be charged £295.10 interest on the Tesco card over a year, compared with £200.48 with Northern Rock. With the Tesco card you would be eligible for a £24.59 interest refund, but even once that is taken into account the Northern Rock card would still work out cheaper.