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Charity Credit Cards
The trend for reward schemes and loyalty cards has taken on a new socially conscious face, with a wave of charity credit cards now available on the market.
To save you the hassle of figuring out if they’re really worth it, then choosing one, we’ve put together a guide to the best charity cards, and alternative ways to donate.
Charity credit cards give money to your chosen charity when you sign up, after that a percentage of each transaction that you make also goes to the charity. They are marketed as a way of giving without curbing your consumer urges – in fact the more you spend, the more you give.
But for you to be able to donate without any cost to you, you need to ensure that you pay the balance off in full each month, or the amount you pay in interest will invariably be far more than that which is donated to the charity on your behalf.
Giving for free. According to debt management charity Credit Action, the average interest rate on credit cards is currently slightly more than 17 per cent. You can get a better deal than this with a charity credit card, but it’s not likely to be massively lower. The main benefit of the cards is that they give money to charity on your behalf.
Spend more, give more. The amount that’s given depends on how much you use the card, but this means that your daily spending, even on things like your mortgage, will all bolster the coffers of your favourite cause. It also means that you don’t have to remember to give to a charity – it is automatically done for you.
Guaranteed giving. Although the savings that you could make by taking a lower APR card, or by going for a points or cash back credit card instead, might be greater, most people would be unlikely to pass this on. Using a charity card ensures that your good will is fruitful.
Discounts. Some cards also offer discounts at partner stores. But as with the others, these benefits are automatically eliminated as soon as you start paying interest on the card.
What are the disadvantages?
Higher APR. You can get much lower life-of-balance APRs with other credit cards, so if you’re one of the UK’s 3.4 million credit card holders that regularly only make minimum payments to their credit cards (Credit Action, 2007), you’d be better off going for the lowest APR.
Transfer fees. Also, although many of the cards offer 0 per cent balance transfers, these are almost entirely subject to a fee. This varies from a set fee of around £50, to a percentage of the transfer, typically around three per cent. £7,000 at this rate would have already cost you £210.
Low donation. The percentage donated isn’t very high. It ranges from 0.25 per cent, up to 1.25 per cent with the Amex Red (one per cent for balances under £5,000), which goes to the Global Fund to fight HIV/AIDS. The Amex Red, with a typical APR of 12.9 per cent is probably the best of the charity credit cards at the moment. If you wish to donate a higher percentage to charity through credit card use, then consider taking out a cash back card and giving the cash rewards that accrue back to a designated charity. The financial gains for the charity will be much higher this way.
No gift aid. One of the biggest drawbacks for the charities themselves is the fact that the tax on any money donated via your credit card cannot be claimed back through the Government’s gift aid scheme. Normally, when you donate your own money – that you’ve paid tax on – you can tick a box indicating that the charity can claim that tax back. This essentially means that for every £1 you give, the charity gets £1.28. They only get the £1 if it comes from a charity credit card.
Remember
Despite the benefits, the best way to give to charity is by setting up a direct debit from your account to donate money directly. This guarantees that your payments are made and leaves your conscience free to take the lowest possible APR.
If however, you’re certain that you will clear your balance each month and not incur any hidden charges for cash advances or online gambling, then charity credit cards are a way to give even more.
