Money Insider: Credit card rates still a lottery

There was more bad news for consumers this week when it was reported that credit card rates have reached their highest level for over 10 years.

MBNA has recently increased the pricing on its Platinum and Platinum Rewards card by 1 per cent to 16.9 per cent, while Barclaycard upped the rate on its best-buy platinum Simplicity card by 1 per cent to 7.8 per cent.

While interest rates in the credit card market remain high, not all providers have been increasing their rates in the last 12 months. Last April, Saga bucked the trend by cutting the rate on its Platinum card by a massive 4 per cent, to just 11.9 per cent APR.

Although the average purchase rate for new customers is now approaching 19 per cent APR, this is far removed from the real picture as applicants with a less than squeaky-clean credit record will end up paying much more.

Just because you sign up to a card with an attractive rate, it doesn't mean it's going to remain that way, with increasing numbers of customers receiving notification that their rate is being hiked even though they are adhering to the terms and conditions of their agreement.

With the UK suffering from a surge in unemployment and the potential of more job losses to come if public spending is curtailed, just as with unsecured personal loans, it is no surprise to see rates remaining stubbornly high.

However, if you have been managing your card in accordance with your agreement, why should you be expected to pay a vastly increased rate to subsidise lenders' mistakes and other customers' bad debts?

Cardholders are having a tough enough time as it is at the present, without providers adding to their financial burden.

If the likes of Saga can manage to cut their rates amidst challenging economic circumstances then it begs the question as to why other providers are pushing their rates in the opposite direction.

A rare bright spot for savers

The latest set of inflation figures released this week may well have been in line with predictions from Mervyn King, but that's of little comfort to anyone with savings.

With CPI now at 3.5 per cent, it means that a basic rate taxpayer needs to find a savings account paying 4.375 per cent just to preserve their spending power. The only way to achieve this level of return is by locking your funds away in a fixed rate bond for at least three years.

This is not an ideal situation, but you can get 4.4 per cent from Nationwide Building Society or Post Office, 4.5 per cent from Saga, and a best-buy 4.6 per cent from ICICI Bank UK.

The average interest rate on an instant access savings account has now dipped below 0.75 per cent, with many accounts paying as little as 0.1 per cent.

It was therefore refreshing to see Norwich & Peterborough Building Society launch its E-Saver account this week, paying 2.55 per cent. Although the rate includes a 1.55 per cent bonus, the account is available from just £1 and there is unlimited, penalty-free access.

Another bright spot amongst all the savings gloom was the launch of the Cash eISA from First Direct. The account offers a fixed rate of 2.75 per cent for 18 months, which also allows the flexibility of unlimited and immediate access to your cash.

Fixed deals get a spring clean

At the end of 2009 there was an increase in activity in the first-time buyer sector. This was probably partly down to would-be new home owners looking to take advantage of the stamp duty holiday.

However with the spring house-buying season just around the corner, Yorkshire Building Society this week launched a range of products exclusively for first-time buyers.

The fixed rates on offer, for those able to raise at least 15 per cent of the purchase price, ranged from 5.39 per cent for two years up to 5.89 per cent for a five-year term. There are no upfront fees to pay, the valuation and legal fees are also free and there is a £500 cashback offer too.

Andrew Hagger is a money analyst at Moneynet.co.uk