American Express credit cards, or Amex cards, are somewhat of an anomaly in the world of personal finance.
Debit and credit transactions are dominated by MasterCard and Visa, so what is American Express and should you consider an American Express card.
The majority of our everyday financial transactions happen via banks, but someone has to bridge the gap between the payment you make, whether it be online or on the high-street, and the banks receiving and sending your money.
That’s where payment networks, the biggest of which are Visa and MasterCard, come in, but Visa and MasterCard are the networks that process your payments, they don’t issue your debit and credit cards.
American Express is a little bit different in that they issue their own cards, they finance the payments you make, and they process the transfers.
They charge you interest or fees to do this, and will charge retailers a fee to process their payments.
Historically American Express was associated with wealthy customers, but the business has morphed into providing all sorts of cashbacks, Airmiles, and extras with its cards.
American Express used to be a statement of luxury, offering its big-spenders extremely high credit limits and allowing them access to exclusive events and circles.
The infamous American Express Centurion card, commonly referred to as the Black Card for instance is an invite-only credit card that costs £1,000s of pounds a year in fees.
In return members get enrolment in various airport lounges and car rental gold clubs, as well as personal shoppers at high-end shops and complimentary companion air fare tickets.
However these days American Express is used by a much broader segment of the population. For example, recent no-fee American Express credit cards offer cashback on shopping, or Airmiles for every amount spent. They also often offer higher tier customers extras like travel and car insurance.
American Express also has a reputation of offering high-quality customer service should you need it.
The best American Express cards currently available offer up to 5% cashback on purchases, as well as Nectar points and Airmiles. Such cashback schemes are typically limited to an introductory period, or require a minimum annual or monthly spend in order to qualify.
Some other American Express cards are linked to particular airlines or retailers. American Express also offers charge cards, whereby any spending has to be paid off in full at the end of the month to avoid charges or fees.
The main disadvantage of an American Express card is the cost – not to you, but to the businesses it processes the payments for.
Unlike Visa or Mastercard, American Express operates its own network, which means it charges vendors an additional fee to use the card, much like some other credit cards.
That means that you won’t be able to use your American Express card everywhere. Particularly smaller retailers will decline an American Express card, and if you’re buying anything online with it you may be charged extra, so take that into account when looking at the rewards.
American Express cards that offer nice extras, like cashback or Airmiles, also tend to have limits on the offers. For instance, the cashback offers may be limited in time, or you only receive your Airmiles if you spend a minimum amount.
While this is fine in principle it means that it can also be very easy to miss out on rewards if you miscalculate, although the same is true for all rewards cards.
What’s more, if the offers are time-limited the card simply becomes a standard credit card after that offer expires. As these reward cards often have high interest rates it makes the card potentially expensive to use after the offer expires.
The key to using American Express, like any other credit card, is to use it sensibly, paying off your debts, and taking advantage of the extra offers and features.
For example, you may be offered a credit card from American Express with extra car insurance cover and access to member’s clubs, but if you already have car insurance for the year, or if you don’t travel much and are unlikely to take advantage of special member’s clubs, then the extra cost may render an American Express a more expensive option.
Likewise, if the card offers you Airmiles contingent on a minimum spend you should make sure you adjust your spending to take advantage of the offer.
And, when you receive your introductory offer, consider carefully if you want to, or need to, keep the card.
Finally, like all credit cards make sure you pay off the balance in full within the interest free period to avoid sky-high fees.
Amex and other cashback or reward cards tend to have high interest rates and fees which is how they make their money.
If you fail to clear your balance and end up paying interest it could quickly wipe out the financial advantage of having the card in the first place.
Amex is by no means the only provider to offer cashback, rewards or other incentives. There are a huge range of both debit and credit Visa and Mastercard’s from a range of high-street banks that offer similar rewards.
For more you can take a look at our best reward credit cards page or our cashback credit cards to see our full table of great deals and offers.
If you’re planning on covering the minimum repayments by setting up a Direct Debit payment for example, as you should, then the interest rate shouldn’t worry you too much. Rather, focus on the rewards on offer and whether they fit with your usual habits or spending patterns.