Money mensch: Charity credit cards are a hideous scam
I want you to stop donating to good causes… if you are using a charity credit card. I’m not being mean. I know as well as anyone that charities need all the help they can get these days, as donations dry up.
Yet the reason I say get rid of your charity credit card is that they give only a paltry amount to the charity itself.
There’s a way to give more to charity that won’t cost you a penny more. In fact, it is possible to increase the donation tenfold or more.
Charity cards are poor value
Typically, for every hundred pounds you spend, the charity gets just 25 pence. So, if you spent £1,000, it just gets £2.50. Contrast that with the best cashback credit cards on the market, and you are getting £5 per every £100 of spending.
In addition, your donation qualifies for “Gift Aid”, which boosts the donation by up to 50 per cent when you donate yourself, but not when it’s through a charity credit card.
In my view, it’s an absolute no-brainer that you should ditch these cards.
Excuse me while I have a wee rant. In many ways, charity cards are a hideous scam. They sell us poor value credit cards on the pretence that we are doing something good and worthwhile.
Yet it’s more profit for the bank, and a very limited gain for the charity. The one good bit is that when you sign up for one of these cards, the charity normally receives a lump sum of between £5 and £25.
If you really wanted to make the most of them, the best way would be to sign up for a several charity credit cards to get the money.
Use them once to make sure the charity gets its money, and then cancel them afterwards.
Be careful, though. Every application for a credit card gets recorded on your credit file, so if you make a few of them it can affect your credit score. Those people who are going to need credit for other things shouldn’t do it.
But if you’ve no immediate plans to borrow money or change your mortgage and if you’ve got a good credit score, it isn’t a problem applying for one or two.
If you are going to do it, it is worth focusing on those where the charities get more: the NSPCC, Cancer Research UK and Shelter all earn £20.
However, if you really want to help in the long term, you’ll need the following two-step plan.
1. Get yourself a top cashback card
Cashback cards are very similar beasts to charity cards, but instead of paying a charity, they give you the money directly from the money you spend on them.
The big difference is that cashback cards pay out a much bigger whack. So when you spend, you earn a greater reward. Thus you can give some or all of it to charity.
Yet there’s a golden rule for charity or cashback cards. Only pick a card for its rewards if you’ll pay it off in full every month, preferably by direct debit, so that you are never charged a penny in interest.
Otherwise the amount you are charged in interest will massively dwarf the cashback gain.
Once you’ve got the card, use it for all your normal spending — instead of debit cards, cash or cheque; that way you’ll build up the cashback.
There’s also the additional benefit of Section 75 protection on any goods more than £100. This only applies to credit cards (including charity and cashback), and is where the credit card company is jointly liable with the retailer. Should the retailer go bust, you can get recompense from the card company instead. See www.moneysavingexpert.com/section75
Donate the cashback via Gift Aid
If you donate money to a UK charity, provided you’re a UK taxpayer, the form will have a Gift Aid option to tick.
This means that the charity can claim back from the government the tax you paid on the money when it was earned.
With the basic rate of tax at 20 per cent, and the government currently adding a bit extra on top, it means the charity gets £1.28 for every £1 you donate.
If you are a higher rate taxpayer, then you can declare the donation on your tax return, which means you’ll get even more back on top, then keep it for yourself or donate it to the charity.
Which are the top cashback cards?
Currently, the American Express Platinum pays new cardholders a massive 5 per cent cashback for the first three months, up to £2,000 spent, with tiered rates of up to 1.5 per cent after that.
Yet this requires a minimum income of £20,000 and Amex isn’t universally spendable. So, as a back up, next best are cards from Abbey, which gives 3 per cent — but only on food and petrol shopping for six months — and the Leeds Building Society card.
You can find full details on the best cashback cards at www.moneysavingexpert.com/cashbackcards
How much will the charity get?
The difference is massive. If you spent £1,000 using a charity credit card, the charity would earn £2.50.
Spend it on an Amex card in those first three months and you would earn £50. Then donate that to charity using Gift Aid and the charity gets an extra £14 on top, meaning you’re donating £64 rather than £2.50. That’s an increase of over 25 times the amount — a massive difference.
However, having been hardline up to here, if you’re feeling too lazy to do the work, don’t just ditch the charity card full stop. Better you use that (paid off in full) than not give anything at all.