A fan of Martin Lewis asked for help as they wanted to make some purchases
Martin Lewis has suggested two financial products that could be worth considering for supermarket shoppers. But he warned that those interested in the schemes should be careful about how they structure their finances.
Answering queries on his BBC podcast, Mr Lewis offered a variety of tips. Topics he spoke about included how to get the best interest rate and deciding whether or not to close any dormant current accounts. One query came in from a listener planning to purchase a new phone as well as a TV this year. They explained they were hoping to buy a mid-range iPhone and didn’t want to spend more than £400 on this, while they’d spotted a specific TV set, which would cost approximately £1,500.
To cover the expense, the person said they were intending to use their savings. However, they thought it might be more favourable on their credit score in the long run if they opted for a Buy Now, Pay Later scheme, or a zero percent credit card.
They were also attracted by the prospect of being able to access cash through these borrowing alternatives, as their emergency savings fund was running somewhat low after recently forking out for some boiler repairs.
The person asked Mr Lewis to evaluate the advantages and disadvantages of these schemes. Responding to the enquiry, Mr Lewis outlined a fundamental principle to remember.
He said: “Saving up in advance is always generally the best way to go with the exception of people who are trying to play the system. You always want to to save in advance because it is far better to save in advance and have interest paid to you by the bank, than to borrow and to have to pay back, and pay the bank interest afterwards.”
Examining the listener’s best options, Mr Lewis advised the person to be “very controlled” with their finances if they opt for a debt form of finance to cover the purchases. He stressed that the person must ensure they have sufficient savings to clear the debt if necessary.
Rewards on spending
He suggested: “I would probably get myself, if your credit score is decent enough, a zero percent for spending credit card. I would probably go for one like M&S Bank or Tesco Bank, because they give your rewards on spending.
“So if you were to use them, you’d actually get some Tesco points or M&S points on top of whatever these items cost you.” Tesco Bank provides credit cards with zero percent interest on purchases guaranteed for 21 months.
You can also earn extra Clubcard points when making purchases. You can earn one point for every £4 you spend at Tesco, and for Tesco fuel, you can gain one point for every £4 you spend plus one point for every two litres you buy.
Over at M&S Bank, you can enjoy zero percent interest on your purchases up to 12 months, depending on which card you choose. With the M&S Rewards Credit Card, you can earn one point for £1 you spend at M&S, plus one point for each £5 you spend elsewhere.
You can also receive 4,000 bonus points if you spend £1,000 across two or more transactions in your first three months. Mr Lewis pointed out that “you get three benefits” from using these credit cards.
3 key benefits
The first advantage is that paying by credit card provides Section 75 protections on your purchase. Mr Lewis suggests paying for at least part of a significant purchase on a credit card to secure these safeguards.
The second benefit is the rewards available from the provider, such as with Tesco Bank or M&S Bank. A third advantage is that the money not being used to buy the items can be placed into a high-interest savings account.
This strategy is known as ‘stoozing’, where you use a zero per cent credit card for your regular or other purchases, while keeping the cash you would otherwise use for these purchases in a savings account earning interest.
You can currently get rates of over 4.5 per cent with some savings accounts. Reflecting on this approach, Mr Lewis said: “That is the perfect technique, but I hope everybody listening can understand the risk of it.
“The risk is if you don’t do it right, you don’t follow the recipe, something happens, you have an emergency, it can go wrong.” He added a reminder that if you opt for a credit card, ensure you make the minimum payment and pay off the card in full.
Ensure our latest headlines always appear at the top of your Google Search by making us a Preferred Source. Click here to activate or add us as your Preferred Source in your Google search settings.
