Brash entrants in house of credit cards

A bold assault of new products is threatening the market leaders. Dido Sandler reports

A brash new breed of low-interest credit card has burst onto the market, posing a serious threat to established card providers. This week Abbey National became the latest to slash its interest rates, to 17.9 per cent APR, up to 5 per cent cheaper than the market leaders.

With base lending rates at a historic low of 6.25 per cent, and the market- leading high street bank credit cards charging 21-23 per cent interest, margins are fat. Increasingly, so is the discount available to discerning "card sharps".

Abbey National, Royal Bank of Scotland Advanta and Save & Prosper are just some of the players in the undercutting game. Further low-cost American companies like PeoplesBank are set to launch into the UK market later this year. If they start to attract large numbers of signatories, big guns like Barclaycard will have to join the fray. Lloyds has launched a Mastercard with a tiered rate, offering lower interest on higher sums - 22.4 per cent APR up to pounds 1,000, 21.1 per cent between pounds 1,000 and pounds 2,000, with 16.2 per cent over pounds 2,000.

However, one of the lowest interest rates comes from Fleming/Save & Prosper. Its Base Rate Card, linked to base rate movements - as is the RBS Advanta - charges just 11.8 per cent. On a debt of pounds 1,000 over one year, a NatWest Access cardholder can expect to pay pounds 231.87, against pounds 118.40 from the Fleming Base Rate Card. This card has no interest-free period.

The Co-operative Bank Gold Base Rate Card charges just the base rate, currently 6.25 per cent, plus an annual fee of pounds 120. The APR, which is based on the annual cost of a pounds 1,000 loan, is 10.87 per cent. The Co-op earns its money from the charge and transaction fees paid by the businesses making the sale. You must have already held a credit card with another company.

The standard S&P card has an APR of 14.6 per cent and an annual fee of pounds 12. It allows up to 56 days interest-free credit. The RBS Advanta card has an APR of 15.9 per cent, no annual fee and is available to people earning at least pounds 10,000 a year. The new Abbey National offering waives the pounds 9.50 fee in the first year, or permanently for bank account customers with income of at least pounds 500 per month.