Credit card customers hit by repeated rate hikes
Credit card providers have collectively made nearly 70 price hikes since the start of the year, with purchase rates increasing by as much as 3% and cash withdrawal rates by a staggering 7%.
So far in 2008, there have been 22 purchase rate increases, 15 cash rate increases and over 30 increases to fees such as balance transfer charges.
The concern is that many people are relying on their credit cards to cope with the increased cost of food, fuel and other household bills. But with prices continuing to get more expensive, these people are likely to find themselves out of pocket.
Michelle Slade, analyst at Moneyfacts, which carried out the research, says: “The number of increases to purchase APRs is quite phenomenal. Normally credit card providers avoid such increases as these are the rates customers see first. It goes to show just how tough credit conditions have become for the institutions and this is being passed onto consumers.”
Credit card cash withdrawal rates have increased the most, as providers penalise those that use their cards to withdraw money.
Debenhams MasterCard customers have been hit with the biggest increase, as the interest rate for cash has increased a staggering 7.047% to 29.9%. Elsewhere, Post Office Classic MasterCard customers have seen a 4% increase to 24.9%. ASDA MasterCard customers now have to pay 22.9% interest on cash withdrawals, after the rate increased 2.8% while Mint MasterCard customers have to pay 27.9% after a 3% hike.
Purchase rates have also been creeping upwards, with NatWest and Royal Bank of Scotland hiking rates by 3% to 15.9% on their MasterCard ranges. Meanwhile, Smile Classic Visa has increased rates by 2%, meaning customers now face paying 20.9% interest on purchases.
As well as higher rates, many credit card customers now face paying increased charges using their card abroad or balance transfers.
American Express has increased its default charge by £2 to £10, while Capital One Platinum MasterCard has hiked its balance transfer fee by 1.3% to 3%.
Finally, British Airways American Express Platinum AMEX customers have seen their annual account fees increase by £30 to £150.
Slade adds: “Rates and charges on credit cards are only likely to continue to increase in the months ahead. If you are not happy with you current deal, make sure you shop around for a better one.”
Used by the holder to buy goods and services, credit cards also have a monthly or annual spending limit, which may be raised or lowered depending on the creditworthiness of the cardholder. But unlike charge cards, borrowers aren’t forced to pay the balance off in full every month and, as long as they make a stated minimum payment, can carry a balance from one month to the next, generating compound interest. As the issuing company is effectively giving you a short-term loan, most credit cards have variable and relatively high interest rates. Allowing the interest to compound for too long may result in dire financial straits.
Moving money from one account to another, whether switching bank accounts or more likely transferring the outstanding balance on your credit card to another card that charges a lower – or 0% – rate of interest. Some card providers may charge a transfer fee that can be a percentage of the balance transferred.