Half of all credit card holders have no idea what interest rate they pay
Almost 50% of people who own a credit card do not know the interest rate they are paying, according to exclusive new research.
The findings, from the Moneywise Consumer Opinion Survey of 20,000 people, reveal that 46.5% of credit card holders have no idea of the rate on their card.
The research also shows that only 14.4% of people gave a low rate of interest as the main reason for taking out their card, while 10.6% of respondents said they chose their card because of brand, and 13.6% said the balance transfer offer was their key consideration.
The biggest single reason for taking out a credit card was the rewards on offer. Many retailers and customer-facing companies now offer their own credit cards, through which shoppers can earn vouchers and cashback.
Some of the most popular rewards cards include: American Express's British Airways card, where holders earn 3,000 Avios points if they spend £500 in the first three months; and Tesco Bank's Clubcard card, where holders earn one Tesco Clubcard point for every £4 spent in each purchase transaction.
Other popular rewards cards are Lloyds TSB's Avios card, where holders who spend £500 a month for the first three months get 15,000 Avios points, and Amazon's card, which offers holders a £5 Amazon gift certificate plus three loyalty points every time they spend £1 on the card in the first 90 days.
However, users who take out a rewards card should remember to pay their balance in full each month as this type of card does not always have the best interest rate.
The Moneywise research also shows that a third of people hold one credit card while a third hold two cards, and 53.9% of people have had a credit card for five years or more.
The results of the Consumer Opinion Survey have been used to crunch the shortlist for the Moneywise Customer Service Awards 2013 – at which Britain's most trusted credit card provider will be announced on June 13th.
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.