Co-op Bank launches cheapest credit card

The cost of consumer credit looks set to plunge after the Cooperative Bank yesterday launched Advantage Visa, the cheapest credit card yet available.

It will also be cheaper than most other conventional ways of borrowing, including bank overdrafts, personal loans and hire purchase, and its launch will intensify the growing price war between credit card suppliers and could encourage a further surge in consumer spending.

The card is aimed specifically at millions of adults who regularly use their plastic as a source of credit as well as a convenient way of paying for goods and services.

Interest is charged from the day the card is used until the balance is paid. As such it is no use at all for three quarters of cardholders who normally take advantage of up to 56 days' free credit available on traditional cards if the monthly accounts are paid in full and on time.

But Advantage Visa cardholders will pay no annual fee, compared with pounds 12 a year on a conventional Barclaycard, and the interest rate charged will be just 7.9 per cent APR (annual percentage rate) until next April. It will then rise to 10.9 per cent APR but it will still undercut the two existing no-fee no free-credit cards currently on the market. Save & Prosper charges 11.2 per cent and Royal Bank of Scotland14.5 per cent APR.

It is cheaper than the People's Bank of Connecticut which offers free credit on prompt payments but charges 14.4 per cent if credit balances are not paid off in full each month. It is substantially cheaper than conventional cards like Barclaycard/Visa and Access/Mastercard, which charge 22.3 per cent on balances not paid off on the due date each month. Banks currently charge a minimum 10 per cent on agreed overdrafts and up to 30 per cent on accounts which go into the red without prior permission.