These days there are a myriad of ways to pay for things. Some might argue too many ways. I’m not so sure. Some of us swear by paying for things one way whereas others prefer different ways to pay. The truth is there are advantages and disadvantages with pretty much all methods of payment. What it really depends on are your personal preferences.

Here’s a list of the most common ways to pay today;

• Cash
• Cheque
• Debit card
• Credit card
• Charge card
• Prepayment card
• App
• Mobile phone
• Electronic watch
• Bank transfer

Cash

Cash may be going out of fashion as a method of payment but it still has its uses. There is no audit trail of your expenditure (though you can usually get a receipt) and no electronic record so it does have the benefit of privacy as long as it is not being used for illegal purposes such as money laundering or tax evasion. It’s a simple and quick way to pay in face to face transactions e.g. in an outdoor market, in a pub or one-to-one especially when the transactions are small. Importantly there are no transaction fees other than charges for cash withdrawals from some cash machines. Cash is increasingly being declined as a method of payment by businesses.

Cheque

Cheques are less widely used these days but they are still prevalent. Institutions such as the government and insurance companies in particular still use cheques as a method of payment. Older individuals in particular still like to use cheques. If you do not trust online banking this may be a preferred solution for you but increasingly banks are closing branches and moving towards electronic banking.

One downside of cheques is that they can be stolen, falsified and paid into the thief’s bank account especially if your post is intercepted.

Cheques can bounce too which can be quite embarrassing if you have miscalculated your bank balance.

Personally, I haven’t owned a cheque book for years. Banks have stopped posting them to me. I do still receive the occasional cheque though. Personally, I find it quite annoying because of the inconvenience of having to visit a bank branch to pay it in but now that I have discovered how to pay it in electronically without visiting a bank I am much happier.

Debit card

Debit cards have their place. Handy if you don’t like using credit cards because you are averse to debt. Useful for making cash withdrawals from cash machines too. The contactless payment increase to £100 helps too. One downside is that your card can be stolen and used by a thief. You may lose your card. There is no insurance protection unlike a credit card if you make a payment and the payee fails to deliver a product or service to you.

Credit card

Credit cards have their place but they are not right for everyone. If you absolutely hate debt then credit cards are not for you. If you are confident in your ability to pay off your credit card every month in full and on time without fail then credit cards may be right for you.

Typically you have between 4-7 weeks to pay off a credit card balance without incurring any interest or penalties. Spending on a credit card regularly and paying it off every month in full will improve your credit rating with the credit reference agencies. No bad thing. Many cards offer money, gifts or points based on the level of your expenditure. Some card companies will offer you 0% balance transfers and purchase cards for periods of up to 2 years typically, sometimes longer. There is usually a one-off fee to pay up front of around 3% so arguably it isn’t totally interest-free but it is still very low-cost borrowing. Critically, if you pay by credit card and the payee fails to deliver the service or product you ordered for whatever reason, your card company will repay you the cost. It is in effect an insurance. Debit cards by contrast do not offer you this valuable protection.

One of the downsides of credit cards is that if you cannot pay off the balance in full you suffer horrendous interest rates on the unpaid balance of anything up to 30% APR or even higher. Also, your credit record will be badly affected if you miss payments. You could be liable to penalties too.

Charge card

A charge card is much like a credit card except you have to pay off the balance in full monthly without fail.

Prepayment card

A prepayment card has the look and feel of a credit card and may be a Mastercard or VISA card too. The difference is that you have to pre-fund it with actual money. So you have the advantages of using it to pay like a credit card but you are never in debt. One to consider for people who like the benefits of credit cards but hate debt.

App

Many apps allow electronic payment such as Paypal, Apple pay, Google pay etc. There are literally too many to mention. Can be a handy and quick way to pay for things if you use your mobile phone a lot and you are comfortable with the technology and trust it.

Mobile phone

Paying with a mobile phone using an electronic wallet such as Apple pay has become a very convenient, easy and quick way to pay for things especially when you are out and about shopping, dining or drinking. Just scan your phone across the card reader and your bill is paid.

Electronic watch

Same benefits as paying by phone except you have to place your wrist on the card reader after clicking on the app.

Bank transfer

Bank transfers, especially when using online banking are very straightforward, quick and convenient. It also saves time as you do not have to visit a branch. If you don’t have Internet Banking you can still use bank transfers but you will need to at least call, if not visit your bank branch.

So there you have it. A summary of the best ways to pay for stuff. You know it makes sense.*

*Risk warnings

The contents of this blog are for information purposes only and do not constitute individual advice. You should always seek professional advice from a specialist. All information is based on our current understanding of taxation, legislation, regulations and case law in the current tax year. Any levels and bases of relief from taxation are subject to change. Tax treatment is based on individual circumstances and may be subject to change in the future. This blog is based on my own observations and opinions.

Tony Byrne

Chartered and Certified Financial Planner

Managing Director of Wealth and Tax Management

If you are looking for expert guidance in Financial Planning contact Wealth and Tax Management on 01908 523740 or email wealth@wealthandtax.co.uk