Make sure it’s a charity and not a bank that profits from donations
March 11, 2007 - With Comic Relief’s Red Nose
Day just around the corner (Friday 16th March), UK consumers may be feeling at
their most charitable and keen to find a way to make regular donations to a
favorite charity. One such way is through an affinity credit card that donates
money to a given charity every time they spend. However, leading impartial price
comparison and switching website, uSwitch.com, warns that consumers and their
chosen charity could be getting a lot less than they bargained for.
Charity credit cards typically pay the chosen charity between 0.25% and 0.40% of
all spending. However the American Express Red Card will give £5 to the global
fund to help fight AIDS in Africa in the first month. A further 1% of all money
spent will also be donated to this charity increasing to 1.25% if you spend over
£5000. Nationwide’s Comic Relief Card is also doubling its contributions
throughout March from 0.50% to 1%. Other charities however do not fare so well -
Help the Aged could receive as little as £15 a year from a consumer that spends
£6000 a year on their Co-operative card.
However, for people who do not repay the full balance on their card each month
or do not have a 0% interest deal in place, donating to charity via a credit
card can be costly as the donation can be dwarfed by the interest costs incurred
on high purchase APR’s. Consumers could save a great deal of money by choosing
the card best suited to their needs and then donating independently to the
chosen charity.
For consumers who do repay their balance in full each month, an alternative
reward card may offer better perks. For example, the AMEX cash back card will
pay 3% on the value of purchases for the first 3 months, reverting to 0.5% for
the first £3,500 of spending and 1% from then on. They can then pay the cash
back earned to a chosen charity independently instead.
Nick White, Director of Personal Finance at independent online price comparison
and switching website, uSwitch.com, said: “When big charitable events like Comic
Relief come along, it can often spur people on to begin donating more to
charity. Donating through charity credit cards is quick and painless, but
consumers need to realize that not all cards offer the charity, or the consumer
a good deal.
“For consumers who pay off their balance in full each month, a credit card that
rewards them for their spending, such as a charity credit card, does hold some
benefits. The percentage of spending that goes to the charity can range from
0.25% with the Halifax Cancer Research UK Card to 1% with the American Express
Red Card – this is a difference of £45 a year on £6,000 of spending. At the
moment, the Red card really is one of the best charity credit cards on the
market. However, consumers could be better off in some circumstances using a
cash back card that rewards them more for their spending and by setting a direct
debit or standing order to their favorite cause. For example, purchases of £500
a month on Amex Platinum will earn consumers £80 in one year.”
Consumers also need to be aware that money donated through the use of a charity
credit card does not qualify for tax relief which is a popular misconception. If
the money earned from cash back is donated however, and the gift box ticked, the
chosen charity can claim back tax as if a donation had been made from a
consumer’s gross earnings.
White concludes: "People should always read the terms and conditions of any new
credit card carefully to make sure they the get the best deal and not be overly
influenced by gimmicks or special offers. Now more than ever, consumers really
need to read the small print on all financial products at the point of
application and from then on, read all letters from the financial provider to
make sure a good deal remains a good deal.”
