Saving with a credit card

Anasuyah asks: I’ve looked at the possibility of paying back my credit card debt and using the facility to save for a holiday. However, the interest on a positive balance is almost non-existent.

What are my options? Can one switch debt to another bank?

Maya replies: If you are looking at short-term savings for a holiday over the next few months, interest would not be that significant and it may just be easier to save into your credit card than open a new account.

For example, if you are saving R1 000 a month over five months and the interest rate difference was 4% between a savings account and your credit card, you would forfeit about R33 in interest. So it depends on how much you are saving and for how long.

That said, if you want to save into a credit card, it is worth investigating the Virgin Money credit card, which has no annual fees (that is a significant saving in itself) and pays some interest on positive balances (currently 3%).

Most banks actually encourage you to transfer your debt to them and even offer better interest rates on debit balances if you do so. They open a new facility and then settle your existing debt with the new debt. But watch out for any upfront costs. It may be best to settle your credit card now and then open a new one when you start saving.

Another problem with saving on a credit card is that you need to be disciplined not to spend the money. Having a separate savings account can create more discipline.

Capitec offers a very good rate for balances under R10 000, so that can be ideal for a holiday fund. Also speak to your bank about their savings options. Nedbank offers good rates from relatively low balances.

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