Cash is dead! Long live plastic (and I’m not talking about new fivers and tenners). I always try to pay on a card – as it’s like wearing a piece of invisible financial armour – and I want to urge you to consider the same.
While cash feels real, and convenient, it’s risky.
A woman once sent me an email desperate for help for her very nearly 90-year-old dad. He’d paid a restaurant a decent-sized cash deposit to book to celebrate his birthday with the family. The restaurant went bust beforehand. She wanted to know how to get his money back. Sadly I’d no answer. Had he paid by plastic, it would have been different.
The number one choice is to use a credit card – as the protection’s stronger, and as you’ll see, some pay you to spend on them. Yet it requires self-discipline not to get into debt; if that worries you, then debit cards still beat cash.
Yet let’s not get silly here. This isn’t a militant call to ditch your paper and coins. For those who need to budget tightly whether due to rigid constraints, or to aid impulse control, cash can be a good way to limit spending – and if that works for you, stick with it. Others want the convenience of handing over a few coins when popping out to buy a paper – that’s fine too.
My real agenda here is that if you’re making any sizeable or important planned purchases, it’s far safer to do so on cards. Here are the four need-to-knows…
- Credit cards have powerful ‘Section 75’ protection. Pay on a credit card for an item costing £100 to £30,000 and it’s covered by ‘Section 75’ laws, which mean the card company is JOINTLY liable with the retailer. Of course you need to pay the card off IN FULL each month or you’ll pay interest.
The obvious benefit is if you order something and the retailer goes bust, as recently happened with Monarch, you can get your money back from the card firm. But it’s far bigger than that.
The joint liability means anything you can complain to a retailer about, you can choose instead to go to the card firm about.
For example, if you bought clothes from Rio de Janeiro samba shop, and on your return home discover a fault, you can ask the card company to sort it rather than ‘going back’ to the shop. Plus, staggeringly, the card provider’s liable for the ENTIRE amount, even if you just pay 1p on the card.
In 2014 Linda Marriott paid a £200 deposit for a new kitchen on her credit card, and transferred the remaining £22,200 from a bank account. The kitchen firm went bust, so Linda and her husband Neal asked the card firm for all the cash. It said no. So they used our Section 75 guide templates to go to the Financial Ombudsman which made the card firm pay the full £22,400.
This is important too. Normally with consumer issues you can only go to court, which judges purely on the law. Yet as a credit card is involved you can go instead to the free Financial Ombudsman Service, which looks not only at the law but also ‘standard industry practice’ and considers ‘have you been treated fairly?’ This can be very successful, and worked well to help some get PIP breast implant refunds.
The only time Section 75 doesn’t work is if you pay via a third party, eg, a travel agent – that breaks the direct payment link needed for the law. - Debit (and credit) cards have chargeback protection. Debit card chargeback means if you don’t receive what you paid for, and the retailer won’t give your money back, you can ask your card provider to request the money back from the supplier’s payment processor.
It’s not law but part of the rules imposed on card firms by Visa and American Express, and Mastercard (£10 min reclaim). While it works on credit cards too, you should use Section 75 instead if you can, as that’s stronger.
You must do a chargeback within 120 days of becoming aware of a problem, up to a maximum 540 days after a purchase (see full debit card chargeback help).
It worked well after Lowcostholidays collapsed, as Victoria emailed: “Just received £1,400 from my Lowcostholidays booking after sending off MSE’s chargeback template letter. TSB paid in just five days. Thanks.” - Some credit cards pay you to spend on them. A few credit cards pay cashback or rewards. It’s done in the hope that you’ll pay back a huge whack of interest. But set up a direct debit to repay the card IN FULL every month, and never withdraw cash on it, and there’s no interest, so now your spending really pays.
The top payer is the fee-free American Express Platinum, which pays 5% cashback (max £100) for three months, then up to 1%. Though there are many choices – see our Top Cashback Cards guide for full best buys.
This can be very lucrative, as Helen tweeted me: “@martinslewis I ‘earned’ £300 on my @AmexUK cashback credit card last year. Not hard swiping a bit of plastic to buy stuff!” - Extra proof for faulty goods. If goods are faulty, many stores want a receipt. Yet by law you just need proof of purchase. So pay on plastic and you can show a credit card or bank statement. Buy in cash and lose the receipt, you’re stuffed.
There are of course shops, stores and service providers that charge extra if you pay by plastic. The rules say this should be in proportion to the operational cost, but that’s disgracefully never been enforced and many flout it. If there is a charge for plastic you need to balance the extra protection against that cost. On many low-risk transactions it won’t be worth it, pay in cash; but for a few, effectively that extra price is in practice an insurance cost.
Overall though for most main purchases plastic wins. A few may also talk about ‘discounts for paying in cash’ though some (not all) of that of course is about dodging tax, which is illegal. Yet I think as technology marches on and we get more electronic ways to pay via cards (eg, using a phone), cash is becoming less important.
Where are you on this? Let me know below…
