Lenders feed our hunger for credit

Andrew Hagger
Saturday 19 September 2015 00:12

Credit card companies are battling harder than ever to take advantage of what is currently a buoyant market. The surge in competition has ratcheted up a level in recent weeks, as shown by two new stand-out credit card offers.

Virgin Money launched a limited offer of 37 months interest free on balance transfers, with a one-off fee of 2.79 per cent. You'll need to hurry if you're interested: the card is only available until 30th September.

To put the size of the 0 per cent switching market into perspective, there were just over 6 million balance transfers, totalling more than £13.4bn, carried out in the 12 months to the end of July 2015. If each transfer was subject to an average fee of 2.75 per cent, that's £368m straight into the coffers of the lenders

The other launch that caught my attention was Everyday Plus from MBNA. It's an impressive all-round card for those who want a long-term piece of plastic for their wallet, rather than to be constantly switching and ditching cards every few months.

Everyday Plus offers a competitive rate of 7.4 per cent APR, and levies no fees for balance transfers, money transfers or cash withdrawals – or for using the card overseas.

The low rate makes it less of a financial burden if you decide to roll a balance over from time to time. For example, a £2,000 balance carried over for one month would cost £12.57 in interest charges, compared with £32.10 on a card carrying a market average rate of 18.9 per cent APR.

This card will provide stiff competition for the Halifax Clarity credit card, which is also free to use abroad. Earlier this year, however, the Halifax hiked the interest rate from 12.9 per cent APR to 18.9 per cent for new customers.

I'm sure there will be a reaction from rival companies to these latest best buys, particularly as consumers have rediscovered their appetite for borrowing on plastic.

Amid increased confidence on the back of the UK economic recovery, the total sum outstanding on credit cards at the end of July stood at £41.36bn, according to the British Bankers' Association – an increase of £3.4bn over the previous 12 months. I'm sure the trend will continue for the rest of the year.

Tesco Bank removes monthly credit restriction

With Santander announcing an increased monthly fee on its 123 current account, some customers may now be reviewing their options.

If you're looking for an in- credit account with no fees, take a look at the latest Tesco Bank deal. It pays 3 per cent on balances up to £3,000 and, while it doesn't offer rewards on utilities payments like Santander, there's no monthly fee. Additionally, Tesco has just dropped both the £750 minimum funding limit and £5 charge previously levied if you paid in a smaller monthly sum.

A sum of £3,000 with Tesco at 3 per cent will give you interest of £72 a year after tax, whereas TSB is paying 5 per cent on a lower maximum balance of £2,000 and would net you an annual £80 a year after tax.

Lloyds bank pays up to 4 per cent AER, but only on credit balances between £4,000 and £5,000, on its Club Lloyds current account. On a £5,000 balance you'll earn £160 after tax in interest, but there's a minimum income requirement of £1,500 (or £5 monthly fee) to bear in mind.

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