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Banks raise credit card costs
11.11.08
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Banks have increased interest rates on millions of credit and debit cards even as the cost of borrowing plummeted to a 53-year low, according to a report.
A study of 240 credit cards showed that while the Bank of England dramatically reduced its official bank rate from 5% in May to 3% this month, the cost of borrowing on cards had gone up.
The research by banking experts Defaqto for The Independent showed that since May, the average annual percentage rate (APR) on cards rose by 0.4%, climbing from 17.2 to 17.6%.
Last week's shock decision from the Monetary Policy Committee (MPC) to cut rates by 1.5% to just 3% was the biggest change since March 1981.
Chancellor Alistair Darling said it was "essential" that banks passed the cut on to hard-pressed consumers, but this latest study will do nothing to allay fears that they are failing to reap the benefit.
People borrowing on store cards, already notorious for high rates of interest, have also seen the cost of doing so increase.
The consumer website MoneyExpert.com found that rates on store cards had risen a full per cent in the last six months, making the average rate now 25%.
More than half of store cards are charging more than 27%, it said, with one type - Creation account cards which are used at a range of stores - charging 30.9% APR if customers do not pay by direct debit.
Sean Gardner, director of MoneyExpert.com, said: "Store cards can be a useful way of qualifying for instant discounts, but when it comes to borrowing they are a complete rip-off. The fear must be that with other forms of credit running dry, desperate consumers will be tempted into expensive deals as a last resort for Christmas."
Its research calculated average APRs for payment by any means other than by direct debit. Store card providers have in the past come in for criticism from the Competition Commission for their "excess profits".
