Card giants cashing in with soaring withdrawal charges

The average interest rate for a credit card cash withdrawal, made in the UK or abroad, has risen by more than 2 per cent since November.

It now stands at more than 23 per cent, while one card, Vanquis, charges an astonishing 46 per cent interest a year.

Banks are redrawing the rules for credit cards after they were forced to slash illegal and unfair penalty charges for those who miss payments.

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Last year, the Office of Fair Trading told the industry to cut charges of around £25 to a maximum of £12 or face legal action.

Now the finance giants are retaliating through the introduction of other fees and methods such as reducing the length of the interest-free period for card purchases.

Research by the finance and price comparison website MoneyExpert.com shows the average annual percentage rate on credit card cash borrowing has risen from 21.27 per cent to 23.48 per cent since last November. Someone taking out £100 from a cash machine with their credit card will be charged £25.98 a year, compared with £23.77 seven months ago.

Sean Gardner, chief executive of MoneyExpert.com, said: "Borrowing cash on your credit card is incredibly expensive and unless it's really necessary we'd urge people to think twice before doing it.

"The average APR was already expensive enough but card firms have pushed up rates by more than two per cent in the last six months.

"There are so many cheaper ways of borrowing than 23.48 per cent."

He added: "It can be tempting to use your credit card to take out cash but if you do you should clear the balance as soon as possible. Using a debit card for cash withdrawals is almost always the best idea."

The introduction of the chip and PIN regime for plastic cards has led to an increase in the number of customers using credit cards to withdraw money from cash machines.

Before the change, most people did not know or use the PIN for a credit card because they would sign for purchases.

That has now changed and around £750million is withdrawn at cashpoints using credit cards every month.

Not all card providers charge high APRs on cash withdrawals. Co-op Bank's Base Rate for Life Visa charges 5.6per cent.

The highest APR is the 46.19 per cent on the Vanquis card from Provident Financial, which is designed specifically for those with a bad credit history who are normally turned down by the major high street names.

MPs and consumer groups have condemned the card, saying it is wrong to impose the highest interest charges on those who can least afford them.

Labour MP John Battle, who has been at the forefront of criticism, said: "To offer money to people struggling to find it then charge them sky-high rates is immoral."

Provident insists its Vanquis card is useful for those who would otherwise be unable to qualify for any sort of card.

It stressed that no interest is charged to customers who clear their bills in full each month.

As well as interest on cash withdrawals, consumers often face one-off charges for using a card to take out money, particularly overseas. A tourist taking out £100 could pay an extra £4.50 on a debit card.

Nineteen of the biggest credit- card companies have raised their cash machine charges over the past year.