Store card consumers 'paying more'

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Around 16 million Britons currently have store cards on which they collectively owe £2.17 billion, according to comparison website uSwitch.com.

But the group warned that the average interest rate charged on a store card was 26%, with some charging as much as 30%, nearly double the average credit card rate of 16%.

People are expected to spend an average of £863 this Christmas and if they spend this money on a store card they will pay around £179 in interest during 2008, if they make only the minimum repayments each month.

But they would face an interest bill of only £123 if they had used a credit card for their spending and made only the minimum repayments.

Mike Naylor, personal finance expert at uSwitch.com, said: "People are typically lured into store card deals at the checkout because they will get a small discount on the purchase being made.

"In most cases, this discount will be completely negated by the high levels of interest incurred by those who do not pay the balance off in full every month.

"More importantly, a busy checkout in a department store is not the best location to allow people to make an informed financial decision and read the small print before signing up."

From May this year all store cards that charge interest rates of more than 25% have had to carry a "wealth warning", alerting consumers to the fact that they may be able to get a cheaper deal elsewhere.

The move followed an investigation into the sector by the Competition Commission, which found retailers and card providers were protected from competitive pressures and so were able to charge consumers a high repayment rate.