Credit card interest rates up despite cut in base rates

Credit card giants are pushing up interest rates  -  and their profit margins  -  despite cuts in the Bank of England base rate.

The average interest rate charged on the UK's major cards has jumped 0.6 of a percentage point in the past six months to 17.4 per cent.

Some cards now carry a staggering interest rate of more than 40 per cent, according to research by the website MoneyExpert.com.

It pointed out that card rates have been going up despite the fact that the Bank of England has twice cut the base rate, from 5.5 per cent to 5 per cent.

It found that more than 72 cards now charge standard rates of 17.9 per cent or higher  -  in February there were 59.

It highlighted the BA Amex Premium Plus card, on which the interest rate is 43.5 per cent if users do not clear their monthly balance.

The Ultima card from Citibank carries a rate of 41.2 per cent.

Experts say the banks are trying to boost their profits from UK retail customers in order to make up for losses in other parts of their business.

The website's director, Sean Gardner, said: 'Homeowners have been the most visible losers in the credit crunch but credit card customers are also sharing the pain.

'Average rates of 16.8 per cent were bad enough in February but despite two Bank of England rate cuts, which reduced borrowing costs by half a point, credit card average rates have increased by 0.6 of a point.'

He added: 'Mortgage customers might complain about rates of six or seven per cent but for credit card customers the charges are much higher. And with some cards charging more than 40per cent it really seems like the sky is the limit.'

However, he said it is still possible to find good value cards.

For example, Barclaycard's Simplicity has a rate of 6.8 per cent, which has held steady for six months.

A second study by the personal finance website Moneyfacts.co.uk found that the loans and products offered by the country's big six High Street banks are very poor value when set against the 'best buys' available.

It found someone taking out a fixed-rate mortgage, personal loan and credit card could find they end up paying approaching £5,000 more in interest than if they opted for best buy alternatives.

Moneyfacts said the worst value across this group of products was offered by Halifax. It said the gap between the best value alternatives and its offerings was £4,700.

The gap for £3,100 for RBS-Natwest, around £2,900 for Lloyds-TSB and Abbey, £2,300 for Barclays, and some £1,600 for HSBC.

Moneyfacts analyst, Michelle Slade, said: 'Many people are loyal to their bank and go to them for everything from their current account to their mortgage and credit card.

'However, by doing so you could find yourself seriously out of pocket as the big named banks do not tend to have the best rates.'