Are you better off with Barclaycard?

WHAT'S THE DEAL?; The first of a new series that analyses attractive-looking financial offers and tells you what the catches are
The offer:

Up to pounds 150 wiped off your existing credit card bill if you transfer it to Barclaycard. The rebate is set at 5 per cent of the bill you transfer, so on pounds 500 you get just pounds 25 back, on pounds 1,000 you will still owe pounds 950 and so on.

Where is it coming from?

It is aimed at people waking up to serious debt hangovers after that terrible trio of traditional spending binges - Christmas, New Year and the January sales. It is also aimed at competing with the increasing number of cut-price cards.

Any other highlights?

As well as cutting your bill Barclays gives you "profile points" on the money you transfer. A transfer could earn you sufficient points for, say, a rucksack, fountain pen or 40-piece tool kit. Also, from the date Barclaycard receives your application, it will meet any further interest charges levied by your existing card companies. And even students are said to be welcome.

So what is the catch?

The card's high interest rate (22.3 per cent) and a little clawback clause (not mentioned in the newspaper ad, of course) on the application leaflet saying: "We reserve the right to require repayment of the refund in full if in the next 12 months the sum of the annual account fee [which is pounds 10] plus the interest charges paid on your account are less than the amount of the refund."

There is nothing stopping you from going on a spending spree on your existing card, then transferring the balance and paying it off minus the refund. No interest to pay and you save yourself up to pounds 150. But Barclays then threatens to come knocking for its pound of flesh at the end of year by redebiting your account. That said, even though the bank claims to have signed up many hundreds of people under the debt transfer deal over the past two years, it says it has not enforced the clawback clause.

Barclays says the clause is aimed specifically at "balance surfers" - people who switch to Barclaycard to get its refund then move on to other card companies offering similar refunds or to those with lower interest rates. The people it hopes will take up its offer will be those who continue to borrow on its card, which is where it makes its money. If you are a credit card borrower you will need to balance the refund you might get against the alternative of switching to a card with a lower interest rate. While you might save 5 per cent of your balance on the transfer, you could end up paying at least the same amount in extra interest (and fee) to Barclaycard compared with going elsewhere.

RBS Advanta, a card company partly owned by Royal Bank of Scotland, and the Co-op Bank are both offering special deals on transferred debts that involve low interest rates. RBS Advanta is offering an introductory rate of 9.9 per cent fixed until January 1998 on its no-fee Visa card. The 9.9 per cent rate applies to both transfers and new purchases. Thereafter customers revert to its interest rate of 8.88 per cent above base rate, which would currently mean an APR of 15.9 per cent. The Co-op's deal is 7.9 per cent until July on transferred balances on a "no annual fee ever" credit card. But for new card purchases the interest rate is 21.7 per cent and after July the interest rate on any debts you transfer that have not been paid off rises to 19.5 per cent.

The verdict?

The deal could be very lucrative if you can get the refund and then clear your bill. Some other card companies doubt Barclaycard's willingness or ability to enforce its clawback clause, although Barclays claims the clause is legally enforceable. If, say, you simply carried on using the card and paying off your bill every month the bank might well be reluctant to risk alienating you at the end of the year by redebiting you for the cashback. If, however, you are someone who uses your credit card to borrow regularly or long term, you might well do better switching instead to a lower-rate card.

Treat the Barclaycard offer as a reminder to shop around. The past year has seen growing competition for credit card customers. Many cards now have no annual fee and there are plenty with interest rates down in the teens. There are also many affinity cards around that allow you to support charities and the like at no direct cost to yourself. And if you have a card that charges a fee, try threatening to take your custom elsewhere unless it is waived. A recent Which? test revealed that one in two lenders were willing to do so.

Barclaycard 0800 492929; Co-op Bank 0800 126000; RBS Advanta 0800 077770.