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Credit Cards and Store Cards: What's the Difference?

28th November 2010

There is such a wide variety of bank cards on the market today, it is no wonder the nation is confused as to which does what. From credit cards to debit cards and rewards cards to charity cards - the list is endless. And now, there is another type of card to add the mix: the store card.

Store cards are similar to credit cards in that they allow customers to make transactions using a card rather than cash, and they also offer a supply of credit. Many large retail stores offer store cards these days, as a new way to encourage their customers to buy more.

The majority of store cards draw customers in by offering high discounts on their purchases at the till, of around 10% to 30%, if they sign up to the card. Many shoppers desperate for a bargain will see this as a great opportunity to save money - particularly in this time of emerging from recession, when our wallets aren't exactly bursting. With Christmas just around the corner, the shops are filled with people looking for good value Christmas gifts.

After signing up to the card, most stores offer a fixed discount on any purchases (lower than the initial high discount). This persuades customers to make impulse buys, and purchase things that they usually wouldn't because of high prices, because they know they are getting a discount - so it is 'worth it'.

But of course, there is the almighty catch of sky high interest rates charged on store cards. Often at around 30% APR, customers end up paying a lot more than they bargained for. Unless they have a very strict self-discipline, and can pay off what they owe straight away, the customer has been ripped off.

The alternative method of borrowing to buy is to use a credit card. Credit cards are offered by a range of financial institutions. They offer an account in which to securely store your money, as well as a supply of credit. Like store cards, credit cards allow you to make purchases in store using a card and a chip and pin machine.

The major difference between store cards and credit cards is their interest rates. Regular credit cards charge a much lower rate of interest, so borrowing money is a lot cheaper. The golden rule when comparing cards is to remember the APR rate (which indicates how much interest will be payable) is generally the most important thing. Any benefits that would have been gained from a store card, such as discounts on purchases, are outweighed by the fact that credit cards charge a lower rate of interest.

Of course, there is a minority of consumers that would benefit from using store cards rather than credit cards (but only in the short run, for reasons which will become evident in a moment). Someone who is fully aware of when the payment must be made by in order to avoid having to pay interest could take advantage of the discounts store cards offer, without falling prey to high interest rates. Eventually, the store will notice this behaviour and reject them - but for a while, they will be able to enjoy some savings.

However, for the vast majority of consumers, credit cards should be used instead of store cards. Most people don't have the discipline to pay the money off straight away when they know they don't have to - or, indeed, the time, particularly when busy with Christmas preparations. So the advice in this case is to stick with the devil you know: your credit card.