Now banks raise credit card costs
Banks have increased interest rates on credit and debit cards held by tens of millions of shoppers despite the cost of borrowing falling to its lowest level for more than 50 years, research for The Independent reveals today.
The Bank of England has almost halved its base rate from 5 to 3 per cent since May, but during the same period the average annual percentage rate for credit cards has climbed from 17.2 to 17.6 per cent. Store cards – already in the spotlight after being accused of carrying excessive rates – have hit a peak of 25 per cent, and the high street chains Principles, Karen Millen and Oasis have raised charges for their in-store cards by 4 percentage points – almost a sixth – to 28.9 per cent.
More than £200bn is owed by Britons in unsecured borrowing, including personal loans, overdrafts and credit and store cards – almost one-fifth of total lending.
While the banks have been heavily criticised for failing to pass on the Bank of England's interest rate cut to their customers, so far providers of "plastic" – which include the same banks and some specialist players – have escaped scrutiny for failing to do likewise with their credit cards.
A study of 240 credit cards for The Independent by the banking research group Defaqto shows that between May and November the average interest rate has risen by 0.4 per cent. Some have risen faster – such as the NatWest credit card, which has risen from 13.9 per cent to 16.9 per cent, while HSBC's credit card and the Virgin Money Mastercard have both climbed one percentage point to the same mark. Credit card companies have also raised charges for withdrawing money from cash machines in Britain and abroad.
Statistics from the financial website MoneyExpert.com show that average rates for 33 store cards from major high street chains such as Argos, House of Fraser and Marks & Spencer rose from 24.4 per cent to 25.4 per cent.
The Creation Account Card, which can be used in stores including Sainsbury's, Woolworths, JJB Sports and Selfridges, charges 30.9 per cent APR for payment other than by direct debit. Burton's card charges 29.9 APR on payment by any means. Only one store card, from Fortnum and Mason, boasts an APR which, at 15.3 per cent, is below the credit card average.
Financial experts warned shoppers to use the cards stintingly, if at all. Sean Gardner, the director of MoneyExpert.com, said: "When it comes to borrowing, [store cards] are a complete rip-off. But with other forms of credit running dry, desperate consumers [may] be tempted into expensive deals as a last resort for Christmas." Research from last year showed that one in 10 people was still clearing Christmas debts from 12 months ago.
David Black, of Defaqto, said that credit card companies were probably trying to recoup the cost of bad debts, rising levels of fraud and customers making use of 0 per cent balance-transfer discounts. Falling sales of payment protection insurance, following a high-profile consumer campaign against rip-off rates, also meant less revenue for card providers. Customers were penalised for staying loyal when they should be looking around for the best rates, he suggested.
But Apacs, the payments association that represents credit card providers, said banks did not set credit card rates according to the Bank base rate: "While the interest rate is considered when [rates] are set, you must also factor in the cost borne in providing the service." A spokesman added that the gap between the base rate and the average credit card APR was at "historically low levels ... Essentially, the credit card market is extremely competitive."
Which?, the consumer group, warned customers not to put spending on store cards. Teresa Fritz, Which? personal finance campaigner, said: "We would say to consumers: there are better places to borrow. Never borrow on a store card. Even for people with a poor credit history or no credit history, there are better places to go; credit unions being one." Ms Fritz added: "People take store cards after being told: 'You get 10 per cent off if you take out one today,' without thinking about the rate of interest."
The Liberal Democrats said card companies that had passed on rises in the base rate should do the opposite when they fall. "Store cards already charge huge rates of interest to often unknowing and vulnerable customers," a spokesman said. "This adds insult to injury."
- 1 British tourists 'murdered' in Thailand: Pair's bloodied bodies found naked on Koh Tao beach
- 2 Vivienne Westwood says 'Yes' to Scottish Independence by declaring: 'I hate England'
- 3 Welcome to Cameroon, where drinking Baileys can lead to imprisonment
- 4 Lego breaks out of the toy box and heads for the gallery
- 5 Vogue under fire for 'Big Booty' article
Daniele Watts: Django Unchained actress detained by Los Angeles police after being mistaken for a prostitute
The political class is doing what Hitler couldn’t – destroying Britain
Scottish independence: Nationalist leader Jim Sillars threatens pro-union companies with 'day of reckoning' after independence
Scottish independence: Yes campaign feels the heat as Alex Salmond's NHS claims come under furious attack
£23m Birmingham cycle scheme is attacked by Tory councillor for not catering to the elderly
Salmond accused of laughing off national debt with ‘what are they going to do: invade?’ joke
iJobs Money & Business
£280 - £320 per day: Ashdown Group: The Ashdown Group have been engaged by a l...
£400 - £450 Per Day: Clearwater People Solutions Ltd: **URGENT CONTRACT ROLE**...
£35000 - £38000 per annum + Benefits: Ashdown Group: Training Coordinator / Pl...
Data Governance Manager (Solvency II) – Contract – Up to £450 daily rate, 6 month (may go Permanent)
£400 - £450 Per Day: Clearwater People Solutions Ltd: We are currently looking...
Day In a Page
A first-floor flat with two bedrooms, a spacious reception room and communal grounds in a leafy part of London
A three-bedroom flat with a spacious rootop terrace and balcony, accessed from a private gated courtyard
A Grade II-listed pile with six bedrooms, stables and 39 acres of grounds in Standlake
A two-bedroom flat with boutique hotel-style interiors, close to the foodie haunt of West End Lane
A two-bedroom flat in a beautiful old vicarage, with many original features, close to the city centre
A three-bedroom 16th-century home with an aga kitchen, private gardens and heated outdoor pool, in Hadleigh
A three-bedrom home in sought-after Queen's Gate Mews, with Italian marble-finished bathrooms
Surrounded by glorious countryside in the village of Udimore, sits this impressive four-kiln oast and barn conversion
A five-bedroom house in the picturesque village of Kettlewell, north Yorkshire
An 18th-century former coaching inn with original staircase, open fireplaces and beams throughout
A Grade II-listed Georgian town house with three bedrooms and a south-facing courtyard, near Arundel Castle
Feel on top of the world at this über chic penthouse on the 37th floor of one of Europe’s tallest blocks.
A Grade II-listed Victorian villa with six bedrooms and two further cottages, all with spectacular sea views
A grade II-listed, Georgian cottage with mature 50ft garden, perfect for summer entertaining
A magnificent Georgian pile with turrets, seven bedrooms, a heated pool and four acres of gardens
Fairoak Farm has five bedroom suites, gym, outdoor swimming pool and golf course
Chic two-bedroom river-fronted flat with a private lift that delivers you directly to your home
A spectacular seven-bedroom Tudor pile, once owned by Henry VIII, with 18 acres of land
A seven-bedroom Georgian property previously used as a picturesque wedding venue
A split-level flat in a church conversion with two en suite bedrooms and 1,200sq ft of living space
A three-bedroom bungalow situated behind an impressive stone wall, £645,000
Windsor Castle overlooks this three-bedroom Victorian cottage located on one of Windsor's smartest roads
Chapel House is a former vicarage with nine bedrooms in the beautiful Upper Wye Valley
A five-bedroom B&B and separate owner's accomodation with potential for conversion
Enjoy summer by the Thames in this two double-bedroom converted warehouse in Rotherhithe village
A one-bedroom, luxury apartment with private gym and concierge service in Moorgate
A four-bedroom house in Hermitage Gardens with three reception rooms and landscaped gardens
A seven-bedroom Grade II-listed property with a separate self-contained apartment
A five-bedroom Victorian house with three reception rooms and galleried landing, £695,000
A six-bedroom farmhouse with five acres of land in a former cloth-making village
A secluded seven-bedroom detached house with large private garden, £490,000
A three-bedroom cottage overlooking Sarratt village green with open fires and solid oak floors
A three-bedroom maisonette flat in a Grade I-listed, Georgian townhouse in a sought-after location
A one-bedroom apartment located within a private gated development, north of Turnham Green
Look forward to a brighter future at two-bedroom Sunny Cottages, ideal for Londoners looking to downsize
A three-bedroom red-brick cottage with outbuildings and pretty gardens, £200,000
This three-bedroom flat within a former textile factory spans the corner of the fourth floor and has a balcony