We take a look at how it compares with other reward cards on the market and explain why this type of credit card won't be the right option for everyone.
What's Egg offering?
The new Egg Money World card pays 1% cashback - the minimum you'll receive is £5 per year, although the maximum is capped at £200.
In addition to the cashback, the card also includes other benefits such as discounts of up to 25% on selected offers at 15 online retailers. These include lastminute.com and Virgin Wines. Egg will also refund the difference if you buy an item over £50 with your card and find it cheaper elsewhere within 30 days (this doesn't include online purchases) and it also offers a 12 month extended warranty on electrical items costing £50 or more.
If you transfer a debt over from another credit card before October, you will pay interest at 8.9% - this applies until that debt is cleared. Also, no balance transfer fee is charged.
The deal sounds great... is there a catch?
Despite the incentives, one of the most notable features of this card is that it has a £1 monthly fee. The decision to levy a monthly fee is a significant because this is the first major provider in the UK to charge a fee for a mainstream credit card. It's unlikely to be the last however. The credit card market is changing and providers are looking at ways to boost profit margins, so expect other lenders to follow Egg's lead.
The fee isn't the only thing to be aware of. If you plan to take advantage of the cashback and other benefits you receive for spending on the card, make sure you clear your balance in full each month. If you don't you'll be charged interest at 16.9% so this cost will far outweigh the cashback benefit.
How does the Egg card compare with other cashback or reward cards?
If you want to be rewarded for your spending then the American Express Platinum Card is more generous. It offers 5% cashback during the first three months up to a maximum of £2,000. Thereafter, the cashback rate is staggered - you earn 0.5% on the next £3,500 you spend on the card; 1% on spending between £3,501 and £10,000; and 1.5% on spending above £10,000. Again, it's important to repay the balance in full each month or you'll be hit with an interest rate of 18.9%.
Most of the other leading cashback cards rely on the cardholder to spend in a specific store to earn a sizeable return. For example, if you live in London and use public transport, the Barclaycard OnePlus Special is well-worth considering. As well as being a credit card, it works as an Oyster card as you can load a travel card or top up if you pay-as-you-go - you earn 5% cashback on Transport for London spend (this offer runs until August 1 2010, although it is capped at £15 per month) but you only earn 0.5% cashback on any spending you make elsewhere.
Similarly, the Argos Mastercard offers 2% cashback at Argos but only 1% elsewhere - the money you receive is issued as Argos gift cards and has no cash value.
Another option is to take out a rewards card which offers benefits based on your spending such as air miles, shopping vouchers and so on . The key is again to pay off the balance in full each month and also to find a reward that is really useful to you.
For example, the MBNA Platinum Rewards Card gives you one point for every £1 you spend and these can be redeemed for high street vouchers, cash, flights, holidays and more. Alternatively, if you're a frequent flyer the bmi American Express Credit Card from MBNA gives you 1.5 destination miles for every £1 you spend on the card plus 20,000 bonus destinations miles when you spend £250 on the card within 90 days of opening an account.
However, a cashback or reward card is only worth considering if you pay your bill off in full each month.
What if you can't clear your balance in full each month?
If you have a debt on an existing credit card then the lifetime balance transfer rate of 8.9% on the Egg Money World Mastercard is appealing if you want to pay back the debt over a long period of time. However, there are other products which beat it.
If you can pay the debt back within the next year or so, you would be better off moving to one of the leading 0% balance transfer cards.
The Virgin Credit Card offers 0% on balance transfers for 16 months although it does have a 2.98% balance transfer fee. At the end of the 16 months you'd pay interest at a rate of 16.6%, so if your balance isn't cleared by this point you should shop around and switch again. Another option is the Barclaycard Platinum which offers 0% on balance transfers until August 2010, but with a lower balance transfer fee at 2.5% and a lower standard rate at 12.4%.
If you are looking for a longer-term deal, the Barclaycard Simplicity has the edge over the new Egg card. It offers a lower rate of 6.8% and again has no balance transfer fee.
It's worth noting that you are only likely to qualify for these deals if you have a good credit score. There are cards aimed at those who have no credit history, or a credit file with a few blemishes on. These include the Barclaycard Initial and the Capital One Classic cards. The interest rates are high at 27.9% and 34.9%, respectively, so you should look to clear your balance each month. But if you are able to demonstrate you can manage credit, it will improve your chances of being accepted for more competitive deals in the future.
Disclaimer: Please note that any rates or deals mentioned in this article were available at the time of writing. Products underlined can be applied for directly.
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