Credit card offers sweet rewards

Sainsbury's is hoping that loyalty will drive more customers to its latest credit card deal. It's offering double Nectar points in store, online and in petrol stations for two years. With 16.8 million people signed up to the Nectar scheme, the supermarket is clearly banking on many of them being persuaded to add themselves to the 500,000 people already signed up to a Sainsbury's credit card.

But is a rewards scheme a good reason to pick your plastic? That depends on how you use your card. If you pay the balance off in full every month – and so never incur interest charges or other fees – then it's clearly worth looking into what other benefits, other than convenience, you can get from using your card.

If you often run up a large balance on credit cards, then more crucial to you will be how much you're going to be charged. The cheaper the cost of borrowing the better. In fact, if you do use a credit card to borrow, Sainsbury's has also targeted you this week with its 0 per cent introductory deal on its other new credit card.

"Interest-free introductory deals have become quite rare," says Andrew Hagger of Moneynet. "However, the new Sainsbury's credit card offers 0 per cent for 12 months on balance transfers and purchases, something that only the Virgin credit card, can match. With the average credit card purchase rate in the market in excess of 18 per cent, the post promotional rate of 15.9 per cent is also attractive."

If you do pay off your credit card balance each month, is the new Sainsbury's Nectar Card deal worth considering? Yes, if you're a Nectar Card customer, says Mr Hagger. "The card offers a very low standard rate of 12.9 per cent on purchases with only a handful of cards offering lower than this, plus you can also get 12.9 per cent on balance transfers. However the double Nectar points on Sainsbury's shopping for two years will be the main reason to sign up for their supermarket customers."

If you're not already a Nectar card holder, it could well be worth signing up to the scheme to qualify for this credit card, but only if you're going to be using it at Sainsbury's, otherwise you get less points. It's easy to sign up for Nectar – you can pick up a card free in store and register online.

Sainsbury's move is the latest in a series of improvements in the rewards offered by credit cards, following the Barclaycard Freedom initiative and the AA rewards credit card. "There seems to be more emphasis in rewarding loyalty in an attempt to encourage longer term customer relationships," says Hagger.

Barclaycard's scheme is currently top of Moneysupermarket's best buys (see below). "But Sainsbury's move shows how the credit card market is becoming more niche – not only do you need a good credit rating, but providers are looking to give better offers to existing customers," says Peter Harrison, credit card expert at moneysupermarket.com.

Barclaycard's deal offers the card's 8 million customers 1p for every £1 they spend in participating shops and restaurants or 0.5p for every £1 they spend at Shell garages. Big names signed up for the scheme include Pizza Express, nPower, Flight Centre, LA Fitness and Balls Brothers. Uniquely, the points – known as Reward Money – can be used while spending. The value of Reward Money appears on the card machine before people enter their PIN to pay. They can then redeem some or all of their points on that transaction.

But if none of your favourite shops or restaurants are signed up to Barclaycard Freedom then the scheme will be worthless to you. It may be worth instead looking to the shops you use most and checking what credit card reward schemes they offer. Both Marks & Spencer and Tesco have decent plastic card deals, for instance. Beyond that you can cut the cost of flights through schemes from bmi American Express and Lloyds TSB's Duo Airmiles cards.

Reward Cards: The best benefits

Barclaycard: 1 per cent in participating outlets (although just 0.5 per cent at Shell) as well as other promotions and discounts.

Sainsbury's Finance: Double Nectar card points on shopping in store, online and in petrol filling stations for two years. One point for every £5 spent elsewhere.

bmi American Express: Spend £250 or more within the first 90 days of opening and receive 20,000 destination miles which is enough for two return flights in Zone 1 – Cologne, Amsterdam, Dublin and others.

Lloyds TSB: Earn one airmile per £10 spent on the Airmiles Duo American Express Card, one Airmile per £50 spent on the Airmiles Duo MasterCard.

Marks & Spencer: Earn one point for every £1 spent at M&S and one point for every £2 elsewhere. 100 points = £1 reward voucher.

MBNA Rewards: Earn one MBNA Reward point for every £1 spent on the American Express card. Points can be used for holidays and high street shopping.

Source: www.moneysupermarket.com