Money: New cards offer bargain rates

Two more credit cards were launched this week. The Co-operative Bank has launched a new no-fee card aimed at regular borrowers, which charges them interest from the date of purchase. But even after the six- month honeymoon period ends next April the rate will only rise from 7.9 per cent APR to 10.9 per cent, which is less than the two comparable cards, Save & Prosper's base rate-linked card, which charges 11.2 per cent, and Royal Bank of Scotland's 14.5 per cent - both with no free credit, and less than half the rate which Barclaycard and the other banks charge on balances not paid off before the monthly statement date.

Hours later, British Gas went into the market with Goldfish, a no-fee credit card which charges 18.9 per cent on unpaid balances and allows users to earn a 1 per cent rebate on everything they spend to credit against their gas bills.

Arguably, the credit card market is now thoroughly saturated. Virtually every creditworthy adult in the country, and quite a few who are not at all creditworthy, have a credit card, and an increasing number have two, three or half-a-dozen.

But the choice of cards is complicated. Some charge an annual fee, others do not. Some, like Co-op Advantage, do not offer any free credit, but most charge no interest if the account is paid off in full by a set date each month, which means up to 56 days free credit.

But the penalty for failing to pay on time is a swingeing interest charge which is impossible to calculate independently. Some offer bonuses like Air Miles or Barclaycard Profile points, and affinity cards issued by charities like the RSPCB pass the bonus to the charity.

If, like more than 50 per cent of cardholders, you pay in full the interest rate is immaterial, and you should choose a card with no annual fee, or one which benefits your favourite charity. If you often borrow, a no-fee, low-interest card like People's Bank which charges 14.4 per cent on unpaid balances will suit you best. If you borrow all the time the Co-op's Advantage could be the card for you because it cuts the cost of credit in line with agreed bank overdrafts and personal loans and offers greater flexibility than either.

Competition reflects the lower cost of money in an age of low inflation, and technical improvements like the use of electronic swipe cards rather than the old-fashioned clunk-click machines which produced paper vouchers. Efforts to reduce bad debts and fraud have also borne fruit although much more could be done in that direction if a cardholder's photographs could be incorporated in the cards.

The newcomers leave the existing bank cards looking very expensive. Visa's initial reaction has been to launch a new advertising campaign starring Mel Smith to boost the appeal of its Visa debit card, which deducts the purchase price instantly from the cardholder's account.