End of the road for rip-off rates on store cards

The idea of a "best-buy" table for UK store cards is pretty ridiculous. Behind a veil of exclusivity and special discounts, most of these cards carry extortionate rates of interest.

The idea of a "best-buy" table for UK store cards is pretty ridiculous. Behind a veil of exclusivity and special discounts, most of these cards carry extortionate rates of interest.

Many have annual percentage rates (APRs) in excess of 27, with even the lowest standard APR nudging 13. Some of the most eye-watering charges are made by well-known retailers: 30.7 per cent at Laura Ashley and Kwik Fit, 29.9 per cent at Debenhams and 29 per cent at Mothercare.

Even at the less punitive end of the scale, Fortnum & Mason charges an APR of 15.3 and Marks & Spencer 18.9.

Such high rates only become an issue when you fail to clear your balance each month. Unfortunately, barely half of the 12.2 million UK consumers with store cards do this, according to research from Sainsbury's Bank.

Many people take out store cards to benefit from up to 20 per cent off purchases on the day they sign up. But incurring sky-high rates of interest makes a mockery of such savings.

"Only if you are very organised and pay off your debt each month should you take out a store card," says Anna Bowes of independent financial adviser (IFA) Chase de Vere. "People aim to pay off the balance but then forget."

But the store card market - long the bête noire of the consumer credit services industry - shows signs of change. The new card from John Lewis/Waitrose charges an APR of 13, with an introductory rate of 6.5 per cent for six months. The Ikea furnishings chain last week halved its store card APR to 12.9.

The industry is also the subject of an investigation by the Competition Commission after the Office of Fair Trading found that rates charged were at least 10 percentage points higher than those of standard credit cards.

The results of the Competition Commission's investigation will be published in September, but one problem has already been identified: our own ignorance of charges. Six out of 10 store card holders are not aware of the APR on their card, says Sainsbury's Bank. Alarmingly, more than half a million of us have over £1,000 left on store cards at the end of the month - and 92,000 of us have over £5,000, the bank has found.

If you have racked up debt on store cards and want to reduce your bills, try switching the balance to a credit card with an introductory 0 per cent offer on transfers and new purchases. Barclaycard is offering 0 per cent on both until 1 August 2005 before reverting to a standard APR of 13.9. If you haven't managed to clear your debt by that time, transfer it again to another 0 per cent deal.

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