Credit card interest charges still flying high
We’ve had the 0.5% base rate for five years now, and while mortgages are currently at record breakingly low rates, and with long fixes, not all forms of credit have also dropped with the base rate. Credit card rates in particular are actually higher than those seen before the base rate drops. So what gives?
Bank of England figures this week reveal that, contrary to what might seem reasonable, credit card rates are actually higher now than they were in 2008- in some cases by as much as a quarter. In 2008, the average credit card customer was paying interest of around 15.5%, but seven years later, credit card interest rates now average 17.8%, which is nearly 36 times the base rate charged by the Bank of England. Practically every major card now has a basic interest rate of 18.9%, with only Nationwide standing out with its standard APR remaining static at 15.9%.
But what possible excuse can banks and card providers have for increasing rates at a time of lowest ever base rates? According to Moneysupermarket.com there is a “clear correlation” between the growing trend for extended 0% interest periods- with the maximum available 0% period now reaching a previously unthinkable 35 months- and higher rates at the end of the interest-free period. It’s like the banks are hoping to lure customers in with the 0% period, only to make their money back by charging more afterwards. Which is of course exactly what they are doing, banking on the fact that around four out of ten card holders fail to pay off their credit card balance every month.
Of course, the answer to it is to make sure you pay off your credit cards rather than face such hefty interest charges, or to make sure you are paying the most off balances with the highest interest rates first. And check when your 0% deal ends- once you revert to the standard APR it’s probably high time you started looking for another 0% deal. If 35 months is becoming a standard, even the busiest of us can probably find the time once every three years to save a packet…