Which low interest rate credit cards also earn points?

When I cover miles and points credit cards on Head for Points, there is a point which I always try to ram home.  In general, miles and points credit cards are not suitable for you if you do not clear your balance every month.

Miles and points cards generally carry steep interest rates.  Just last week, American Express quietly hiked the interest rate on purchases on its Nectar credit card from 19.9% to 22.9% variable.  (The Nectar card has a decent sign-up bonus of 20,000 Nectar points – worth at least £100 – and is free for the first year, but you really should avoid it if you won’t clear your balance each month.)

Quietly, however, the situation has changed.

Two of the three cheapest low interest rate credit cards on the market now give points.

Using Moneyfacts data, there are three credit cards which currently have an interest rate of 5.9%.

Option 1:  The Tesco Clubcard low rate credit card (earns Avios or Virgin miles)

This card is free.  There are various versions including 28 months of 0% interest on purchases and 40 months of 0% interest on balance transfers.

There is also a low rate version – click here – offering a market leading 5.9% APR variable.

You would earn 1 Clubcard point for every £8 spent on this card, which converts to Avios (1 Clubcard point = 2.4 Avios) or Virgin Flying Club miles (1 Clubcard point = 2.5 miles).  This works out at 0.3 Avios per £1 spent.

Note that Clubcard points are awarded on a ‘per transaction’ basis so you won’t earn anything on individual transactions of £7.99 or less.

Whilst not hugely generous, this is actually the highest Avios earning rate on a free Visa or MasterCard unless you meet the very stiff criteria for getting a HSBC Premier credit card.

If you are looking for a credit card with a low interest rate which also earns miles then this is the option for you.

Tesco Mastercard credit card low rate

Option 2:  Sainsbury’s Bank Low Rate credit card (earn Nectar points)

Like the other two cards featured here, this card also has a market leading interest rate of 5.9% APR variable and is free.

You earn Nectar points with this card but the rate is incredibly poor.  It works well at Sainsbury’s, where you earn 2 Nectar points for every £1 spent on shopping and fuel, but everywhere else you only earn 1 Nectar point for every £5 you spend.

If you value a Nectar point at 0.5p, which is what you get for them at most places, this is a return of just 0.1% on your spending.  You can find out more here.

Until 21st May there is a sign-up bonus.  Make four transactions at Sainsbury’s within your first 30 days and you will receive 5,000 bonus Nectar points worth £25.

Option 3:  The AA Low Rate credit card

For completeness, I also wanted to mention the only other credit card on the market with no fee and a 5.9% APR variable interest ratethe AA Low Rate credit card.

The AA Low Rate credit card does not offer any miles or points.  There are two benefits though:

  • 0% APR and no fee on balance transfers for 3 months when made in the first 3 months
  • 0% APR on purchases for the first three months

Conclusion

In general, my advice still holds – most miles and points credit cards should be totally avoided if you pay interest.

If you do pay interest on your credit card, however, the three options above have the lowest interest rates on the market (as of the date of publication of this article) and two of them will also let your earn points whilst you spend.

(Want to earn more miles and points from credit cards?  Click here to visit our dedicated airline and hotel travel credit cards page or use the ‘Credit Cards Update’ link in the menu bar at the top of the page.)

Disclaimer: Head for Points is a journalistic website. Nothing here should be construed as financial advice, and it is your own responsibility to ensure that any product is right for your circumstances. Recommendations are based primarily on the ability to earn miles and points and do not consider interest rates, service levels or any impact on your credit history.  By recommending credit cards on this site, I am – technically – acting as a credit broker.  Robert Burgess, trading as Head for Points, is regulated and authorised by the Financial Conduct Authority to act as a credit broker.

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Comments

  1. Alex W says:

    Surely worth mentioning the Lloyds Avios Credit card, 29 months interest free on purchases and only £24 annual fee. AND no FX fee, upgrade voucher and 1.25 Avios per £1. If only the Avios points would post…

    • the real harry1 says:

      very dangerous! 🙂

      …but highly useful – Tesco have a similar product, which my wife & I have both got for cashflow advantages (Purchases Credit Card if you want to look it up)

      you obviously need to avoid paying interest at the end of your interest-free term

      plus any sort of cash advance is meant to turn off your interest-free status so watch out for this

      • I did a separate article on 0% cards a couple of months ago. This is specifically on permanent low rate cards.

        • Alex W says:

          The concept of low rate credit cards doesn’t make sense to me. Surely you either pay off the bill or you get a 0% card. Why would one voluntarily take out a credit card with the intention of paying interest on it?

        • Julian says:

          Because you can’t guarantee that being able to churn 0% interest rate cards will continue to be allowed forever by the credit card issuers. So you might roll out of a large 0% loan for a year to find to your horror that no credit card issuer will now let you transfer a loan at under 15% interest (especially if you are by then a bad credit risk)

        • Julian says:

          MBNA keep on (every single month lately) offering me the opportunity to borrow almost £17,000 for five years at 4.9% (with no cash advance fee) on my former University Affinity Visa card with them. But they do not offer any other form of reward on this account other than the free Accurist watch they gave me for applying for it to begin with over 15 years ago. But anyway always a very handy low interest rate sum to be able to borrow in an emergency if the need suddenly arises. Hence why I have kept the card and its interest rate going by settling a small roughly £5 bill every month with it.

          When interest rates on bank deposits were higher (up to end 2008) and this card then used to charge no cash advance fee I used to borrow £15,000 or so interest free and then put it on deposit at 6% interest (a process MSE described as Stoozing). Unfortunately five or more years ago MBNA bought in the high 4% advance fee for money transfers to your bank account making the card fairly useless for the time being. Now it has suddenly become potentially useful again with the 4.9% being a long term five year rate for a large sum. Also based on MBNA’s past policy I would expect to be able to pay back the £16,000 off at the end of the low interest rate period and then probably receive another similar 5 year low interest offer soon after (although possibly at a higher level if market interest rates had risen in the intervening period)

          The main question I have though is once Lloyds have carried out their review of the MBNA business and decided what to do with it (i.e. simply swallow it in to Lloyds or keep it as a separate brand to attract in more price aware customers who want better credit card lending deals than both Lloyds and Halifax offer) what will happen to MBNA’s currently highly aggessive policy on both credit limits and low interest rates? I suspect Lloyds corporate culture will be significantly more risk averse in that regard than Bank of America has tended to be.

          Also does anyone else understand what was the point of the “we’re number nerds” (and look like major geeks) tv adverts that MBNA was running regularly at the time they were up for sale? The adverts didn’t seem to actually be selling anything to real end customers and only seemed to be selling the corporate image of MBNA, a corporate image that Lloyds/Halifax surely had no intention of preserving in the long run??????

  2. I doubt it even makes sense to use a points earning card, even with a low rate. You would certainly want to run the numbers and offset the interest cost from the points value. Unless the interest rate is as low as you’d get on a card that doesn’t earn points in which case you could break even but even then a 0% purchase card would probably make more sense.

    • Taking the Tesco card, say you do a single transaction for £1,000, that earns 125 CC (1000/8) which equates to 300 Avios. Paying that £1,000 over 12 months would cost you ~£32 in interest so even valuing your 300 Avios at 1p, best case you reduce that £32 of interest to £29.

    • Callum says:

      Rob says it’s market leading though (I’ve not seen lower either), so if you need to build up debt on a credit card it must make sense to get points over getting nothing.

      Trivial amounts granted, but better than nothing!

      • I always assummed that no-one ran a balance on rewards cards because the rates were crazy. In my discussions with credit card execs, however, it turns out that isn’t true. A far lower % pay interest than usual but when they do they are paying it on a higher than average balance.

        • Andrew says:

          Outstanding balances are easily explained, although don’t always make financial sense.

          My former employer paid expenses within 48 hours of sanctioning by line manager.

          My current employer pays expenses with the payroll (27th monthly or previous business day if a weekend ), as long as they are sanctioned by the line manager by 11 working days prior to the payroll date – it doesn’t take much to go out of sync and, of course, they don’t pay interest charged.

          So I have a choice, use a low interest card or use a points card. For the moment, interest charged makes the cost per point worthwhile.

    • I treat spending on credit cards like debit cards and cash, fortunately I’ve never really wanted anything I didn’t already have money in the bank to afford (except perhaps maybe a property in central London).

      However, I think some people are usually able make full payments on time, but once in a while they can’t because they either have variable income and no savings, or they need to make large and/or unexpected purchases. Then it may make sense to use a points card and pay the interest because they can’t predict when they will need to borrow. Maybe they only borrow for a short periods while waiting for next payslip.

      I can see the attraction of buy and use now, pay later (with the caveat that it will cost 3 times as much)

  3. Winston says:

    Hi,

    I’m new to the website. I see that you mentioned the HSBC Premier card. I am wondering what is the process to convert the points to Avios? Right now I can only see the option to convert to BA points, rather than the generic Avios.

    Apologies in for asking such newbie/noobie question

    W

    • the real harry1 says:

      no probs

      provided you don’t open a Household account, you can open both a BA points (Avios) a/c and an avios.com Avios a/c – and switch the points freely between them as much as you like

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