The advantages of charge cards
Because there is no credit facility with a charge card, there is no spending limit, which means you can spend as much as you want to. This makes charge cards a good option for high spenders.
You also won't be charged interest as your balance isn't carried over from one month to the next, so there's no risk of getting into debt.
In addition, charge cards often come armed with benefits such as concierge services, travel insurance and access to airport lounges.
Some cards also allow you to earn reward points which can then be redeemed on flights or shopping. It's for this reason that they can be useful for businesses as well as individuals.
The disadvantages of charge cards
Charge cards are no good if you are looking to spread the cost of a purchase - whatever you spend on the card needs to be paid back at the end of each month, so it's important not to spend more than you can afford. You can set up a direct debit to help you to remember to do this.
If you don't pay off your balance in full or on time, you risk being hit with late payment charges and fees, and your card could be cancelled.
There are also fees for cash withdrawals but, most importantly, charge cards require you to pay an annual fee. Annual fees can be as high as £450, so you'll need to work out whether the benefits that come with the card outweigh the cost of the fee.
In addition, charge cards tend to have minimum income requirements and you'll need to have an excellent credit rating.
Finally, purchases made on charge cards aren't covered by Section 75 of the Consumer Credit Act or the Consumer Credit Directive which, between them, protect purchases between £100 and £60,260 in the event that your goods don't show up or are faulty.
However, purchases made with a charge card should be covered under a scheme called chargeback. American Express, Visa and MasterCard all have chargeback schemes which allow you to claim for a refund within 120 days of discovering a problem providing the purchase amount was more than £10.
What are the options?
American Express offers a variety of charge cards. Its Preferred Rewards Gold card, for example, gives you 20,000 points when you spend £2,000 or more in the first three months – this is enough to get you two return flights to Paris or Amsterdam. You'll also earn one point for each £1 you spend on the card, as well as double points on overseas spending and double points on petrol and supermarket purchases for one year. These points can be used on travel, or they can be spent in retailers or on days out.
In addition, you'll receive two complimentary airport VIP lounge passes every year and have access to exclusive invitations from Amex to music, theatre and film events.
The card has an annual fee of £125 but this is waived for the first year. You'll need to have a household income of at least £20,000.
The Amex Platinum card works in the same way but gives you 30,000 reward points when you spend £2,000 in your first three months, which is enough for two return flights to Barcelona. You will also have unlimited access to more than 1,000 airport lounges around the world and have access to a concierge service to help you to book flights, get tickets to events and book dinner reservations. In addition, you'll get worldwide travel insurance for you and your family.
However, in return there is a £450 annual fee and you will need an annual household income of £40,000 or more.
It's worth noting that, throughout July, Amex cardholders can get discounts at local businesses if they register their card on the Small Shop website. Once you have done this, whenever you spend £10 or more on your Amex card at one of the participating retailers, you'll get £5 cashback (once per location).
Amex also offers a range of charge cards for businesses. Its Gold Business Charge card offers 40,000 reward points when you spend £3,000 in the first three months – enough for a business class return flight to Europe. It has a £125 annual fee and you'll need to earn at least £20,000 to apply.
And the Amex Platinum Business Charge Card gives you access to a concierge service and comprehensive travel insurance. It has an annual fee of £450 and you'll need to earn at least £20,000.
Barclaycard also offers business charge cards. Its Gold Corporate card has a much lower annual fee of £32, while its Platinum Corporate card charges £78 a year. Both cards give you discounted AA membership as well as access to airport lounges, although Gold cardholders will need to pay extra for this.
Are charge cards right for me?
If you religiously pay off your card balance in full each month, have a good credit score and are sure you'll make full use of the benefits, a charge card is well worth considering. Compare the benefits and the fees carefully, though, and bear in mind that not all retailers accept American Express.
Alternatively, you could consider using a cashback credit card, which will give you cash back as you spend, or a rewards credit card, which allows you to collect points to be redeemed on flights or in certain stores.
Again, you'll need to pay off your balance in full each month or face high interest charges. If you're planning to make an expensive purchase which you can't afford to pay for upfront, a 0% purchase credit card is a better option. Read my article to find out more.
Please note: Any rates or deals mentioned in this article were available at the time of writing. Click on a highlighted product and apply direct.