This article was first published in the second quarter 2016 edition of Personal Finance magazine.
It’s no secret that South Africans are addicted to credit, in all its shapes and forms. One of the most popular forms, of course, is the credit card. Everyone seems to have one, whether it’s the humble entry-level variety, which does the job without ego-boosting extras, or the eye-catching platinum (or titanium or purple) kind that associates you with luxuries such as airport lounges and limousines.
According to the Payments Association of South Africa, which manages the country’s payment systems, there were 8.8 million credit cards in issue at the end of 2014, and more than 38 types of credit card available. With all this variety comes a great deal of discretion on the part of the providers as to how they tailor their offerings to the financial circumstances of individual customers.
So, if you wanted to, you could research interest rates on credit-card balances, credit limits (the amount you are allowed to borrow on a card), card fees, transaction fees, automatic and discretionary benefits, and the array of complex rewards programmes available ad nauseam and still end up picking a card on the basis of one or two features that take your fancy.
When it comes to the all-important matter of the interest you pay on your credit, most providers play their cards close to their chest, because they give preferential rates to high-income clients who use their cards frequently and manage their accounts well. Standard Bank is the exception; you’ll find its interest rates on accounts opened before and after January 29, 2016 on its website (see below).
In the hierarchy of credit cards, colour is the key. The right colour-coding signals “high income” in an instant to anyone looking on. Once upon a time, status was expressed in silver and gold; now platinum is the new silver, and black or purple the new gold. Purple is also a badge of fitness and privilege, as bestowed on the holder by Discovery, which awards its purple card to favoured customers who have numerous Discovery products and are dedicated followers of the provider’s Vitality programme.
Rewards for loyalty and frequent card use come in all forms, from free coffee and magazines on the Woolworths Black card to access to airport lounges on the high-flyer cards of all the major banks and luxuries such as concierge service, free airport transfers and bespoke travel packages. In the even more rarefied market segment of private banking (for clients with an income of more than R750 000 a year, in most cases), all the major banks boost their offering by facilities such as access to financial planning by a dedicated private banker (“Your own go-to guy”, as FNB calls this service) and international banking and investment facilities.
In essence, at the top end, the banks are harnessing your spending/saving/investing power through a package they present as tailored to your high net worth, your individual requirements and your potentially globetrotting lifestyle. As Absa’s head of card-issuing, Willie van Zyl, puts it: “We offer rich value propositions for the more affluent segments of society via our Private Banking and Wealth credit card products. Therefore, it is important to note that, as card service fees increase, the embedded benefits of the card exponentially increase in value.”
Nice to have, but are these cards really a valuable asset? Personal Finance tried valiantly to find out.
Back to basics
Before we go upscale, what can you expect from a common-or-garden credit card? It might come from any one of the major banks (look out for a new entry into the market when Capitec launches its long-promised credit card), or from a store, such as Woolworths, or have its own branding, such as Blue Bean (a division of Standard Bank).
You need to be earning a steady minimum income, and the minimum amount varies from bank to bank. For example, Standard will give you its entry-level Blue card (not to be confused with Blue Bean, which has a black card) if you earn R5 000 a month, while Nedbank’s bottom-line Classic card requires a minimum of R3 000 a month. First National Bank (FNB) will give you its Classic card if you earn at least R6 600 a month. And with a monthly income of just R2 000, you can get an Absa Transact credit card.
You pay a one-off initiation fee (R150 at Absa, FNB and Nedbank on cards of all levels), monthly card fees, transaction fees and fees for extra services, such as over-the-counter transactions at a branch or making cash deposits. All the banks publish fee schedules on their websites.
In a competitive market, such basic cards operate similarly and charge relatively low monthly service fees, which they may break down into credit facility service fees, which represent the cost of administering your credit facility, and account fees, which cover the cost of administering your account.
For example, on FNB’s Classic card, these two fees add up to R34, while Absa charges a total of R30 on its Transact card. At Nedbank, the monthly card fee on the Classic card is R24.
All the banks have loyalty cash-back programmes, such as Nedbank’s Greenbacks, FNB’s eBucks and Standard Bank’s UCount. Joining these programmes incurs extra charges.
On top of your set fees, you pay interest on your credit card balance. However, it is difficult to pin the banks down on exactly how much interest they charge; they say each customer is treated individually and given an interest rate and a credit limit based on his or her individual credit profile.
“Interest rates are determined on an individual basis that is dependent on internal risk methodology and income,” Van Zyl says. He says Absa’s credit-card interest rates fall between 11.5 percent and 23.2 percent. FNB says its credit-card customers “benefit from personalised interest rates” and pay between 13.25 percent and 24.85 percent across its products. Nedbank applies a range of 19.15 percent to 23.75 percent. (These quoted rates were applicable on February 1, 2016.)
Standard Bank is more transparent, and publishes the maximum interest rate applicable to each of its cards. The rate on its entry-level Blue card is 24.85 percent and on its Gold card is 22.4 percent. Compare these with the rates on the bank’s high-end cards: 18.4 percent on the Platinum and World Citizen cards, 10 percent on the Young Professionals card, and 11.25 percent on the World Elite card.
Of course, interest rates fluctuate with the repo rate, which is the interest rate at which the South African Reserve Bank lends money to banks. After three repo rate increases in five months (November 2015, and January and March 2016) took the repo rate to seven percent, economists expected further increases in 2016.
When the repo rate rises, so does the banks’ prime lending rate (the best rate they offer to clients). When the repo rate moved up in January, the prime rate moved from 9.75 percent to 10.25 percent.
“Debit interest rates are affected by the prime interest rate and decrease as you move from our standard card offerings to the premium products,” Vinolan David, the head of card issuing at Standard Bank, says. “Credit-card interest rates are typically lower than interest rates for other unsecured lending products, such as personal loans or overdrafts, and provide consumers with a convenient and affordable option to finance purchases anywhere in the world.”
It may seem counterintuitive that the wealthier you are, the less interest you pay, but it makes sense from the banks’ perspective: wealthy people are a better credit risk, and big spenders will pay the bank substantial amounts of interest even at low rates. For example, if your interest rate is 15 percent on credit of R150 000, you pay R22 500 over a year; if your interest rate is 20 percent on R10 000, you pay R2 000.
You can avoid paying interest by paying the balance in full at the end of each month. Importantly, paying in full each month will also have a positive effect on your credit rating with the bank, which, in turn, should lead to a lower interest rate and a higher credit limit.
Interest paid by the bank on a positive balance is nominal and much the same wherever you go; using your credit card as a place to store your money is not advised. Nedbank and FNB, for example, each offer 0.25 percent on balances up to R9 999.
The standard benefits on most cards include:
* No transaction fees on purchases.
* Debt protection (automatic and top-up) – your outstanding balance will be paid if you die or are permanently disabled and can no longer work. The cover pays out a specified maximum amount or the outstanding debit balance of your personal credit card, whichever is lower.
* Automatic travel insurance to the value of at least R150 000 (for a comprehensive survey of free travel insurance on credit cards, see Credit-card travel cover: good to go?).
* An interest-free period up to 57 days.
* Free secondary cards.
* Access to credit, subject to your credit limit, anytime, anywhere, including overseas.
If your card is linked to a rewards programme, the more you use it, the more benefits you will receive.
Higher credit limits and lower interest rates on what you owe – that’s the universal promise of credit cards as you move up the scale, but until you apply for a card, you probably won’t know how high or how low. The only bank that plays open cards on interest rates at this level is Standard (see above). Nedbank’s range of interest rates applicable to its Platinum card is 17.15 percent to 23.75 percent, according to its website.
The only thing that is transparent about these cards is the service fee. For example, the FNB Premier card – previously known as the Platinum card – costs R69 a month, and the monthly account fee for the Premier bundle, which gives you a cheque account and a Premier credit card, is R199. You need to earn between R350 000 and R749 999 a year to get one.
The service fee on Absa’s top-level Platinum card (you need a minimum income of R300 000 a year to qualify) is R65 (and secondary cards are free, as they are with most of the banks). Nedbank’s Platinum card (R350 000 a year) costs R58 a month.
“Credit cards in South Africa are allocated to consumers based on affordability and fit-for-purpose value,” Absa’s Van Zyl says. “Therefore, credit cards are commonly segmented based on one’s affluence, thereby implying that higher-income customers will qualify for higher credit limits.”
All the basic credit card benefits listed in the entry-level category apply, but some are much more generous at this level. The main categories of benefits available to premium card holders are:
* A higher level of automatic travel insurance and associated medical services. For example, the FNB Classic card covers medical expenses to the value of R500 000, the Gold card stretches to R5 million, and the top-level Platinum, Private Clients and Private Wealth cards will cover you to the tune of R10 million. Nedbank’s travel insurance rises from R150 000 at Classic card level to R3 million at Platinum level.
* Richer rewards packages. When the premium cards are linked to rewards packages such as eBucks (FNB), Greenbacks (Nedbank) and UCount (Standard Bank), you get the double benefit of spending more (with your higher credit limit) and earning rewards at an enhanced rate. For example, Nedbank’s Greenbacks-linked credit card earns you twice as many points per purchase as the Greenbacks-linked cheque card.
* Travel benefits. Affluent, successful people are associated with business and leisure travel, and this is a major focus of the lifestyle benefits of credit cards, such as access to Bidvest airport lounges with Absa’s Platinum card, as long as you spend R5 000 in point-of-sale purchases in the month of visiting the lounge, or R15 000 over the preceding three months. Discovery cards offer discounted holiday packages and air travel, but there are strings attached (see below).
* Financial advice. Naturally enough, high incomes are associated with financial services, and the banks have good reason to offer financial advice. For example, Standard Bank’s Platinum card (income of R58 000 or more a month) provides “expert financial support from your dedicated relationship manager or private banker and 24/7 access to the Platinum customer-care line”. With FNB’s Premier card, the bank “provides one-stop service at extended hours from a dedicated team of Premier bankers”.
* Additional protection and convenience. Most of the banks throw in some enticing extras, such as the Take Me Home service linked to FNB’s Premier card, whereby you and your car can be driven home safely after a night out; Absa’s extended warranties on goods you buy on your card; enhanced card fraud protection and free face-to-face courier delivery of new cards.
What follows is not a comprehensive breakdown of the premium card offerings, but it should help you to decide whether you are a natural black, aspire to gold, or are ready to push all the way to platinum. Then again it could be your purple period …
The top-end Absa Private Banking card (which is available through Visa or Mastercard) is available to customers earning at least R750 000 a year as part of a package with a service fee of R380 a month. At this level, both Visa and Mastercard offer reward programmes that give you access to special travel, shopping, dining and lifestyle discounts and offers.
Like the other big banks, Absa offers an array of private banking services, including a personal banker to arrange customised financial solutions, as well as manage your day-to-day banking. Through Absa’s partnership with Barclays Wealth, Private Banking clients have access to a range of international transactional and investment solutions.
Clients on this package get a 10-percent discount on accommodation at luxury resorts, as well as 10 percent back on the Absa Rewards programme, which gives cash back to card users at various rates, depending on their card level.
Absa’s Platinum card is the next level down and is available to people who earn at least R300 000 a year. Monthly fees amount to R65. The benefits include free Bidvest lounge access at airport terminals in South Africa, secondary cards at no additional cost, offers and discounts from Visa or MasterCard, automatic purchase protection and extended warranties.
You also get expert advice and assistance via the Platinum line, optional credit protection to cover most or all of your outstanding balance in the event of death or permanent disability, and a proportion of your balance over six months if you are retrenched.
You also get the Take Me Home service and special holiday offers.
FNB’s Private Wealth card is offered to people who earn R1.5 million a year or who have a net asset value of R1.5 million or more. For the bundled option – the Private Wealth cheque account, credit card, overdraft, online securities trading account and global account – you pay R399 a month.
For this, along with all the other benefits, you get access to expert advice and specialised wealth management for you and your business.
If you earn less than R1.5 million but more than R750 000 annually, you qualify for the Private Clients card, which offers the services of a dedicated private banker and the full spectrum of financial services, including fiduciary and investment solutions. The standalone card costs R149 a month, while the bundled option, which includes a cheque account, costs R345 a month.
When it comes to rewards and privileges, Chris Labuschagne, the chief executive of FNB Credit Card, says the card targets customers who travel frequently both locally and internationally. “They get access to local and international [airport] Slow lounges, as well as free Avis Point 2 Point transfers. These customers also have free visits to the Slow in the City lounges to assist with business meetings and business requirements,” he says.
eBucks rewards are more generous at this level and cardholders have “the exclusive service of the eBucks Lifestyle Desk, where a dedicated lifestyle assistant will take care of all their travel needs”.
The next level down is the FNB Premier credit card, with a qualifying income of between R350 000 and R749 999 a year and a service fee of R69 a month. The bundled option with a cheque account costs R199 a month. The interest rate and credit limits vary from person to person.
You receive a higher tier of benefits on the popular eBucks programme and, if you have a linked petrol card and live in one of the major cities, you can take advantage of a drive-home service after a night out. You also have access to Slow lounges at the domestic terminals of OR Tambo, Cape Town International and King Shaka airports, as well as at the international terminal at OR Tambo, and Slow in the City lounges.
Labuschagne says FNB tries to address the needs of customers at each credit card level and to reward them in ways from which they will derive the most benefit. For example, a graduate is less likely to be a frequent flyer and therefore has less need for airport lounge access and comprehensive global travel insurance.
“It is with this in mind that we offer various categories of credit cards to match our customers’ varying needs,” he explains. As the card level increases, so cards carry a higher eBucks earning potential and higher credit limits, as well as higher monthly service fees.
When it comes to high-end cards, Tracy Afonso, the head of professional and small business banking at Nedbank, says the group’s premium credit cards are usually part of either the Private Banking package, offered to customers with incomes in excess of R700 000 a year, or the Private Wealth package for customers with an annual income of at least R1.5 million or investable assets of at least R5 million.
“These premium offerings carry higher monthly fees, due to higher levels of servicing and benefits offered. The cards would typically offer lower interest rates, higher credit facilities and far greater value-added features (insurance, lounge access, concierge services),” Afonso says.
Just below that level is the Platinum card, with a monthly service fee of R58 (considerably more than the R20 charge on the Nedbank Classic card). For that, you get access to Bidvest Premier airport lounges, free face-to-face delivery of new cards and automatic travel insurance of up to R3 million, Marc van der Zon, the senior business manager for credit and charge at Nedbank, says.
Nedbank’s Savvy Bundle includes Platinum credit and cheque cards, unlimited transactions, an overdraft facility, membership of the Greenbacks reward programme, plus the benefits above, all for R180 a month.
Standard’s Platinum credit card is its Private Banking card for high-income individuals earning R700 000 a year and above. Credit limits are adjusted for the higher income levels, but are still based on disposable income. “The credit limit is determined by your risk profile and affordability as disclosed by you during the application process,” David explains. “Affordability is assessed based on the difference between your income and expenses, including debt repayments. Standard Bank offers credit card limits from below R10 000 to R120 000 and above for new accounts.”
Like others in its range, the card offers a private banking service with a personal banker assigned to help customers with all their banking needs. “The card can be taken on a stand-alone basis or bundled with a Private Banking current account, where a competitive premium service fee applies due to the nature of the tailored private service model,” according to the website.
The benefits of the Platinum card include earning UCount rewards at a higher rate, the option of converting UCount points into Avios or SAA Voyager Miles, booking travel deals online at Standard’s Travel Mall and accessing Bidvest travel lounges.
Standard’s Young Professionals credit card (which is black, inspired perhaps by the glamour of the American Express Black card, which is “by invitation only” and reputedly has no credit limit) is aimed at young, up-and-coming, high-income (or potentially so) customers with professional degrees. Users have access to the same service model and benefits as Platinum card holders “but are not subject to the same income criteria, as we recognise that they are just starting out in their careers. A below-prime interest rate is offered to young professionals to assist them during this life stage, where very affordable credit is particularly valuable, while service fees align to the Platinum credit card [at R57 a month],” the website says.
Standard Bank was the first South African bank to launch the exclusive World and World Elite black and metal cards. These credit cards are offered to “discerning high-net-worth individuals and their families”, with the metal card offered on an invitation-only basis. According to the website, “the cards form part of a comprehensive wealth and investment service and product offering where a relationship manager crafts highly bespoke service and financial solutions” for individuals and their families.
The cards also promise “world-class bespoke travel and lifestyle benefits, including a comprehensive personalised concierge service, worldwide access to lounges and a variety of bespoke travel and experiential offers”. The website goes on to say: “Many affluent customers travel for business and pleasure and a Standard Bank credit card provides the convenience, safety and security that they need while abroad.”
If you are a dedicated Discovery Health/Vitality member, you are unlikely to overlook the Discovery Card and the exclusive Discovery Purple card at the top of the range.
At the lower level, credit cards start at Blue (R49 a month) and graduate to Platinum (R75 a month), depending on the Discovery products you use and your status on the Vitality programme. There is nothing for nothing in this system, but the benefits are substantial if your lifestyle suits the programme and you qualify. For example, you get:
* Up to 20 percent cash back at Discovery partner stores, depending on your Vitality status, and 22 percent cash back when you book holidays through Discovery Travel partners;
* Up to 10 times more Discovery Miles with the HealthyLiving Miles Multiplier benefit, which, again, depends on your Vitality status;
* Up to 50 percent savings on holiday accommodation in the Vitality Hotel Collection;
* Discounts on live events through Big Concerts; and
* The Health Wallet medical savings facility to pay for day-to-day medical expenses.
And then there is the elusive Discovery Purple card. Like the exclusive American Express Black card, not everyone can get one and information about it is not easy to come by, to boost the exclusivity factor (though it is rumoured to cost R14 200 a year). Benefits depend on your status with Discovery and the amount you spend monthly or annually on your card. For example, if you spend more than R1.5 million on the card over 12 months, you qualify for a 100-percent discount on local flights for yourself and 50 percent off for dependants who are also members of the Vitality programme. You also get 50 percent off travel on Rovos Rail and one gym membership free for a full year.
So, the sky really is the limit with credit cards, and if you are a high earner still languishing on the entry-level card you were given in your first job, you can certainly negotiate with your bank for a higher credit limit (they’ve probably offered you one over the years) and a lower interest rate, and request a premium card with the additional benefits that go with it.
At the level of private banking and above, you will pay significantly more and be expected to maintain your income and spend at high qualifying levels.
If you are moving up the scale, do check with the bank about the consequences if you unable to meet the criteria of a premium card in the future, for any reason, including retrenchment, illness and retirement.