FEAR OF FINANCE

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The Independent Online
The mortgage war has gone quiet during the dog days of summer, although in the last few days Abbey National has introduced a novel Flexi- Break Mortgage, which offers borrowers eight months completely free of interest over the next six years instead of the more conventional discount on the rate in the first year or two. This will look increasingly attractive if mortgage rates rise.

To qualify, the mortgage has to run for at least nine months before the first waiver is taken, the borrower is locked into paying the Abbey's standard variable rate, currently 7.04 per cent up to pounds 60,000 and 6.99 per cent above until November 2002, and the waived interest has to be repaid if the mortgage is redeemed before then. Interestingly, it is not available as a remortgage.

But competition continues to spark in credit cards. Midland Bank is shaving its interest on unpaid balances from 1.59 per cent to 1.545 per cent from September 2, which compares with 1.56 per cent at Natwest, 1.57 per cent at Lloyds, 1.61 per cent at Barclays and 1.67 per cent at the Royal Bank.

Midland is also offering new customers a card with no fees and a low rate of 0.945 per cent a month. Customers with debit balances on other cards can bring their debts across and save interest. After 12 months rates revert to normal, but customers can continue to qualify to pay no annual fees by earning 220 Choice points at a rate of one for every pounds 10 spent.

Which, the consumer organisation, has also ruffled some feathers among the providers of financial services it regularly monitors by launching its own credit card, complete with short-term introductory offer.

The card is fee-free and charges 1.09 per cent a month on unpaid balances. After 6 months the monthly interest on unpaid balances rises to 1.45 per cent. That is still below the rate charged by long-established conventional credit cards, but is well above the market leaders like Save & Prosper (pounds 12 fee and 1 per cent monthly), or People's Bank's 1.13 per cent a month interest and no annual fee.

The message for credit card users is that there are bargains available, but rates and terms are liable to change as the providers jockey for competitive position, and it is necessary to keep a watchful eye on short-term special terms.

Anyone who is thinking of switching cards as the special discounts come to an end will have to be very careful to surrender one in good time in order not to incur any upfront annual charge for the following year. Stopping using the card alone is not enough. But the card providers rely on the fact that most of us will forget or will not get round to arranging an alternative card in time and will carry on using the original card out of sheer inertia.

Credit cards are especially useful at holiday time because they can be used to draw money from cash dispensers abroad. Many tourists are still reluctant to use a credit card in an ATM in case the machine swallows the card, leaving the individual up the proverbial creek. But tourists can actually use debit cards to draw cash from ATMs, provided the cards carry the appropriate international symbols.

Access, Mastercard and Visa are automatically acceptable but Switch cards can only be used abroad if the card issuer has an arrangement with Mastercard, in which case the card must have a Maestro logo to make purchases and a Cirrus logo to withdraw cash.

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