How can we shuffle the pack as card rates soar?

Plastic has joined home loans as a casualty of the credit crunch. Julian Knight searches for good deals

With the UK banking system still gripped by the credit crunch, it's now the turn of card borrowers to feel the interest rate pain.

Research conducted exclusively for The Independent on Sunday by financial information service Moneyfacts reveals that a substantial number of credit card lenders are dashing to raise their rates.

Since April, a host of high-street names – including Barclaycard, Royal Bank of Scotland, HSBC, Nat-West, Capital One and the Co-op bank – have increased their cost of borrowing.

In one instance, the American Express Nectar credit card, the interest rate charged has gone up by a whopping 3 per cent from 15.9 to 18.9 per cent. All in all, across the UK credit card market, 19 purchase rates have been increased over the past three months.

"It is nearly unprece-dented to see so many providers raise their purchase rates over such a short period," says Michelle Slade from Moneyfacts. "Generally, hiking the purchase rate is considered a last resort for lenders, as they have to put this headline rate in their adverts. If they need extra cash, they will normally do other things, like increase the fees for transferring a debt from another card [the balance transfer fee] or for using the card at an ATM to withdraw cash," Ms Slade adds.

Some observers suggest the move to raise purchase rates indicates a growing desperation among lenders to shore up their shrinking profits. "Banks, as a result of the credit crunch, are short of money and can only find this cash by either cutting their costs or increasing profit margins," says David Kuo from financial advice website "Since the back-end of last year, they have been dashing around trying to increase the profit margin through less noticeable means, but they are now only left with raising the headline rate. It just shows the dire straits they are in," he adds.

And the stream of rate increases could soon turn into a flood. "If banks continue to be unable to raise cash on the international money markets, I can only see some headline rates getting higher," says Mr Kuo.

Many borrowers who have recently switched card provider could already be paying more, without even being aware of it.

"These headline rates are only the typical annual percentage rate on offer. If someone doesn't have a perfect credit record, it may be that they are already being offered a rate in excess of the headline," warns Ms Slade. "Banks have defin-itely been tightening their lending criteria."

Elsewhere, some providers have been busy cutting credit limits for riskier customers so to reduce the chances of bad debt.

"Just as happened with the mortgage market a few months ago, it's getting tougher to get a good deal. If you see a good offer then snap it up fast because there is every chance it will become oversubscribed and ultimately withdrawn," says Mr Kuo.

Tracey North from the price-comparison service suggests that people who have a large balance on their plastic should look at the 0 per cent deals available from the Halifax and Capital One.

"Both of these cards will give you a 0 per cent rate on balance transfers – in the Halifax's case for 10 to 12 months, and Capital One's 16 months, which is the longest period available. However, a balance transfer fee has to be paid."

People looking to avoid a transfer charge could opt for Capital One's low-rate credit card, launched last week. "It levies 8.5 per cent on balance transfers and new purchases made with the card, but crucially there is no upfront transfer fee," says Ms North.

Mr Kuo says that in the light of the credit crunch and the twin spectres of recession and unemployment, people with credit card debt should "move to as cheap a deal as possible and pay back what they owe as soon as practical, and avoid building up new debt".

For people looking for a low headline purchase rate, rather than to transfer a balance from another card, M&S Money, the Halifax and NatWest all offer cards that charge 0 per cent – but only for a few months. Once this introductory period is over, the rate goes up.

Independent Partners; request a free guide on NISAs from Hargreaves Lansdown

people And here is why...
Arts and Entertainment
Amazon has added a cautionary warning to Tom and Jerry cartoons on its streaming service
voicesBy the man who has
Arsene Wenger tried to sign Eden Hazard
footballAfter 18 years with Arsenal, here are 18 things he has still never done as the Gunners' manager
Life and Style
The new Windows 10 Start Menu
Arts and Entertainment
Kristen Stewart and Robert Pattinson star in The Twilight Saga but will not be starring in the new Facebook mini-movies
tvKristen Stewart and Stephenie Meyer will choose female directrs
Arts and Entertainment
Hilary North's 'How My Life Has Changed', 2001
books(and not a Buzzfeed article in sight)
More than 90 years of car history are coming to an end with the abolition of the paper car-tax disc
newsThis and other facts you never knew about the paper circle - completely obsolete today
Arts and Entertainment
There has been a boom in ticket sales for female comics, according to an industry survey
comedyFirst national survey reveals Britain’s comedic tastes
Arts and Entertainment
Twerking girls: Miley Cyrus's video for 'Wrecking Ball'
arts + ents
Arts and Entertainment
Ed Sheeran performs at his Amazon Front Row event on Tuesday 30 September
musicHe spotted PM at private gig
people'I’d rather have Fred and Rose West quote my characters on childcare'
Finacial products from our partners
Property search
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

By clicking 'Search' you
are agreeing to our
Terms of Use.

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    Trainee Recruitment Consultant - Birmingham - Real Staffing

    £18000 - £23000 per annum + Commission: SThree: Real Staffing are currently lo...

    Trust Accountant - Kent

    NEGOTIABLE: Austen Lloyd: TRUST ACCOUNTANT - KENTIf you are a Chartered Accou...

    Graduate Recruitment Consultant - 2013/14 Grads - No Exp Needed

    £18000 - £20000 per annum + OTE £30000: SThree: SThree are a global FTSE 250 b...

    Law Costs

    Highly Competitive Salary: Austen Lloyd: CITY - Law Costs Draftsperson - NICHE...

    Day In a Page

    Ebola outbreak: The children orphaned by the virus – then rejected by surviving relatives over fear of infection

    The children orphaned by Ebola...

    ... then rejected by surviving relatives over fear of infection
    Pride: Are censors pandering to homophobia?

    Are censors pandering to homophobia?

    US film censors have ruled 'Pride' unfit for under-16s, though it contains no sex or violence
    The magic of roundabouts

    Lords of the rings

    Just who are the Roundabout Appreciation Society?
    Why do we like making lists?

    Notes to self: Why do we like making lists?

    Well it was good enough for Ancient Egyptians and Picasso...
    Hong Kong protests: A good time to open a new restaurant?

    A good time to open a new restaurant in Hong Kong?

    As pro-democracy demonstrators hold firm, chef Rowley Leigh, who's in the city to open a new restaurant, says you couldn't hope to meet a nicer bunch
    Paris Fashion Week: Karl Lagerfeld leads a feminist riot on 'Boulevard Chanel'

    Paris Fashion Week

    Lagerfeld leads a feminist riot on 'Boulevard Chanel'
    Bruce Chatwin's Wales: One of the finest one-day walks in Britain

    Simon Calder discovers Bruce Chatwin's Wales

    One of the finest one-day walks you could hope for - in Britain
    10 best children's nightwear

    10 best children's nightwear

    Make sure the kids stay cosy on cooler autumn nights in this selection of pjs, onesies and nighties
    Manchester City vs Roma: Five things we learnt from City’s draw at the Etihad

    Manchester City vs Roma

    Five things we learnt from City’s Champions League draw at the Etihad
    Martin Hardy: Mike Ashley must act now and end the Alan Pardew reign

    Trouble on the Tyne

    Ashley must act now and end Pardew's reign at Newcastle, says Martin Hardy
    Isis is an hour from Baghdad, the Iraq army has little chance against it, and air strikes won't help

    Isis an hour away from Baghdad -

    and with no sign of Iraq army being able to make a successful counter-attack
    Turner Prize 2014 is frustratingly timid

    Turner Prize 2014 is frustratingly timid

    The exhibition nods to rich and potentially brilliant ideas, but steps back
    Last chance to see: Half the world’s animals have disappeared over the last 40 years

    Last chance to see...

    The Earth’s animal wildlife population has halved in 40 years
    So here's why teenagers are always grumpy - and it's not what you think

    Truth behind teens' grumpiness

    Early school hours mess with their biological clocks
    Why can no one stop hackers putting celebrities' private photos online?

    Hacked photos: the third wave

    Why can no one stop hackers putting celebrities' private photos online?