Zero in on new credit card holiday bargains

THE credit card market is open for business again, with a flurry of new plastic hitting the high street as banks battle for customers. Halifax last week launched a Clarity card, attractive to customers travelling abroad and who face being stung by high fees.

Most cards charge a minimum 2.75 per cent to 3 per cent when you use your card abroad, with further minimum cash withdrawal fees on top of 3 or 5 for taking money out of a dispenser on top.

Many travellers fail to realise these foreign exchange fees are levied every time plastic is used to buy a coffee, make a purchase in a shop or restaurant, or to withdraw cash. If not watched carefully, they can add hundreds of pounds to the cost of a trip.

The Post Office, Saga and Santander have credit cards which do not levy a foreign usage fee anywhere in the world. The Nationwide card is also fee-light in Europe, but a 1 per cent fee is charged further afield.

However, even these may charge a cash withdrawal fee, with Saga levying a 2 per cent or 2 minimum charge, and the Post Office only waiving its 2.5 per cent, 3 minimum fee when you take out its travel money.

Now the Halifax's new Clarity credit card promises no foreign exchange fees, with no cash withdrawal, balance transfer or annual fee.

Moneyfacts card specialist Sam Owens sees the move as part of the general reopening of the credit card market. She said: "The banks pretty much shut up shop for a bit, and would only give a card to their existing customers.

"The zero interest cards were very thin on the ground, their offer periods cut right back, and they could be extremely difficult to get."

Royal Bank of Scotland and Clydesdale Bank attempted to kick-start the market in May. RBS announced anyone could apply for its Platinum card, previously only available to current account customers, which gives free credit on purchases for three months and balance transfers for 15 months, charging an annual percentage rate (APR) of 16.9 per cent thereafter. Transferring a balance will incur a 2.9 per cent fee, with a minimum 5 charged.

Meanwhile, Clydesdale has extended its zero interest on balances offer from 12 to 16 months, while also offering three months' interest-free on purchases. The transfer fee is 3 per cent, minimum 3, and interest charged at the end of the offer periods is 16.9APR.

However, the difficulty with cards which have different zero interest periods for purchases and transfers is that the cheapest credit is paid off first. So if you buy something and then make a payment on the card, the payment reduces the zero balance, while the purchase attracts the higher rate.

Rather than helping you out of debt, they can trap you in a never-diminishing spiral.

It makes sense, therefore, to have two cards running in tandem, one to go shopping with free purchase interest and the other to keep at home on which a big balance can run, having paid a fee to get a zero rate.

Another option may be the Virgin 12/12 card, which charges zero interest on both purchases and transfers for 12 months, with a transfer fee of 2.98 per cent or minimum 3, so there is no confusion about where the payment is going. Balances and purchases are charged at the same rate.

But all the above cards will levy additional charges. The Virgin card, for example, charges 3 per cent, minimum 3, for cash advances and 2.99 per cent for foreign usage.

This is what makes the Halifax card attractive. Kevin Mountford, head of banking and credit cards at moneysupermarket.com, said: "This is an attractive offering from Halifax and is further evidence of the increased revival in the credit card market. With no foreign exchange fees on all transactions and no cash withdrawal fees when using a cash machine overseas, it is a worthwhile deal for those who need a card for holiday spending."

But fees are not the only consideration. If you use a credit card to withdraw cash you will be charged interest on top from the moment you take out the money. Saga is alone in offering 55 days' grace on cash advances if you pay your balance in full, and is also cheapest at 11.9APR, but is only available for the over-50s.

The new Halifax card charges 12.9APR. There is also a cashback of 5 when you spend 300, but this is only available to certain current account customers who pay in 1,000 a month. The Post Office charges interest at 19.9APR, as does Nationwide, with Santander at 18.9APR.

However, there is a way around paying interest on cash withdrawals. If you overpay your credit card bill before you go on holiday, so you are effectively in credit, then no interest will be charged as long as the card remains in the black. It is a form of pre-paying for your holiday.

Sygma Bank also moved to shake up the market with the launch of a new card last week offering zero-interest balance transfers for 15 months and free purchases for three months, with interest clocking in at 16.9APR thereafter.

Nationwide will also allow free interest on balance transfers for 15 months, although after that date it clocks in at a slightly higher rate of 19.9APR. Its transfer fee is also slightly higher at 3APR with a minimum 5, rather than 2.98APR and minimum of 3.

It is important when shopping for a new card to carefully compare the "summary boxes", which list all the fees, charges and interest considerations in an easily comparable form. You can search for these on the internet. Halifax and Santander both offer free interest on balance transfers for 13 months, with a 16.9APR to follow, and a 3 per cent fee, although Santander has a 5 minimum against Halifax's 3. The AA offers zero interest for 12 months.

If it is free purchases you are after, you can borrow interest-free for a year with Sainsbury's and Tesco, which charge 15.9APR and 16.9APR respectively thereafter. Alternatively Halifax, M&S and the AA charge zero interest on purchases for ten months, with the first two charging 15.9APR thereafter and the AA 16.9APR.

However, these will not be the cheapest if you need to borrow over any significant period of time.