The credit card market is showing signs of a resurgence as we slowly move out from the darkest days of the recession.
In the last year the number of cards charging no interest on new purchases for at least 10 months has increased by 450%, implying the “open for business” sign is very much back in the window.
Over the same period the number of cards offering 0% on balance transfers for at least 10 months has increased by 20%.
According to the research carried out by consumer information provider, Moneyfacts, providers launching competitive reward schemes include American Express, Barclaycard, Egg, NatWest, Royal Bank of Scotland and Sainsbury’s Finance.
However, we’re certainly not home and dry yet as interest rates charged on cards continue to increase, with the average credit card rate today standing at 18.7% APR.
Since the start of the year the following providers have increased rates for new customers: Barclaycard – rates increased by up to 2.0%, Capital One Bank – rate increased by 5.0%, Egg – rate increased by 1.0%, MBNA Europe Bank – rate increased by 1.0%, Sygma Bank – rate increased by 2.0%.
Michelle Slade, spokesperson for Moneyfacts.co.uk, explained how credit card companies are starting to feel more comfortable doing business now that the market has started to stabilise again.
“Credit card companies have taken time to assess the market and now feel comfortable with doing business in the current economic environment”, she said.
Mrs Slade also pointed to the recent investigation made by the Office of Fair Trading, which highlighted the credit card company’s practice of enforcing “negative order of repayments” – forcing consumers with multiple credit cards to repay those with the lower interest first.
By making consumers repay their cheaper debts first, higher interest on cards are paid, at a cost to the consumer.
However, from January 2011 new legalisation being introduced will prevent card companies from being able to do this. Analysing how different companies have reacted to the new rules and its effect on the consumer, Mrs Slade said: “Most card providers currently make significant revenues from having a negative order of repayments.
“MBNA Europe Bank is the first provider to react to the announcement and joins just Nationwide BS, SAGA and The Co-operative Bank in offering a positive repayment order.
“Unfortunately for customers interest rates continue to rise and are only likely to increase further as providers are forced to lose revenue from moving to a positive repayment order.”
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