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Money Mailbag: I’ve saved enough for an extension, what’s the best way to spend?

Paloma Kubiak
Written By:
Paloma Kubiak

“We’ve finally saved up enough to get an extension on our property (£40,000). But is there a best way to spend such a large amount of money?” Sam, Bristol.

You’ve done the hard work saving up such a vast sum, and now you should be rewarded for spending that amount.

YourMoney.com speaks to two banking and credit experts to find out whether you should go down the reward, cashback or purchase credit card route to maximise the benefit of your savings.

Kevin Mountford, banking expert at MoneySuperMarket, says:

If you’ve saved up for a house extension and are ready to get the wheels in motion, it’s worth exploring cashback or reward card options with incentives that suit your needs.

You can earn up to 5% with a cashback card (American Express Platinum Cashback Everyday credit card, 22.9% APR variable) and if you’re planning to spend a large amount this will soon add up.

Alternatively, with a reward card you’ll accrue points every time you spend which can then be spent in stores or put towards the cost of flights for example.

Of course there is no reason why you shouldn’t take out multiple cards to make full use of all the different types of rewards or cashback on offer, as long as you can keep track of payments going in and out of the account.

Having several credit cards does not impact your credit score, as long as you do not miss any monthly payments, stick to the payment deadline and stay within your credit limit.

It’s also worth bearing in mind that the interest rates on these types of cards aren’t particularly competitive, making them suited just to people who can afford to clear their balance in full each month.

If you don’t manage the account and allow debts to build up, you will almost certainly pay more in interest than you will get back in return.

And if you do decide to pay cash, bear in mind you won’t get an invoice and will have limited protection if anything goes wrong.

Alastair Douglas, CEO of credit comparison site, TotallyMoney.com, says:

Most rewards and cashback credit cards would have between a £1,200 and £10,000 initial credit limit or are capped at about £10 a month cashback, so they wouldn’t be suitable.

If you did decide to use a credit card for a £40,000 transaction, you would be best off opting for an American Express Preferred Rewards Gold Card, but this isn’t technically a credit card.

There’s a £140 annual fee (£0 in the first year), but for a £40k spend, you would earn 58,000 membership rewards points (20,000 for the first £2,000 and 38,000 for the remaining £38,000), which has a monetary value of £190. Once you remove the annual fee, this works out as a net positive of £50. The card has no limit on spend, but you have to pay off your balance at the end of each month.

There are advantages to using a 0% purchase card. If construction work was faulty or incomplete, you would be able to claim the money back from the credit card company but, again, they would be unlikely to give you a £40,000 credit limit.