Charge of the credit card brigade

Don’t feel too sorry for them but credit card companies are starting to suffer. Not many of us will weep too much at the news but banking analysts say UK credit card companies are feeling the pain from a clampdown on penalty fees by the Office of Fair Trading and by the growing numbers of people who can’t repay their debts.

Last year, according to analysts Lafferty, card firms made profits of £1.16 billion which might seem like a lot but this is 43 per cent down on 2005. The average profit they make from each card holder is just £16. In the US card firms make £24 per card holder.

MoneyExpert.com’s switching index revealed that over 600,000 people had switched credit cards in the last 6 months, indicating that lots of us are changing cards to take advantage of zero per cent deals and avoid crippling standard variable rates.

It doesn’t take a banking analyst to work out what UK credit card firms will do in response. They’ll want to boost profits and one way to do that is bring back annual charges for having a card.

Annual charges used to be imposed by all card firms but were gradually phased out. Now it looks like they are staging a comeback.

Paying the penalty

In the past credit card companies could rely on a steady flow of hefty fines to boost the books but since last year the Office of Fair Trading has put an end to charges of £25 pounds or more insisting upon a maximum of £12 for things such as exceeding your credit limit or being late with making repayments.

Beating the charges

Research shows card providers are already coming up with new ways to get more money out of us. One in eight credit card companies have at least one credit card with an annual fee.

MoneyExpert.com’s figures show that eight credit card companies now charge an annual fee on at least one of their products. The highest fee is some £275 a year and the lowest just £24. The fees on cards are similar to those charged by banks for so-called packaged current accounts which offer incentives such as cheap insurance in return for the fee.

However, despite paying for the privilege of using a credit card, customers of fee-paying cards aren’t getting deals to match. Only two cards offer any kind of introductory offer on balance transfers or purchases, at a rate of around 5.5 per cent for six months. The average standard APR on balance transfers is 16.78 per cent and on purchases is a staggering 27.1 per cent.

Only one fee-paying credit card on the market offers cashback and three have a shopping reward programme. However, other incentives include a concierge service, airport lounge facilities, medical insurance, refund protection and guaranteed hotel accommodation.

A number of card providers have introduced an annual fee. They include Morgan Stanley which has imposed a £20 charge on thousands of its Black Card customers who don’t use their card often enough.

Co-Operative Bank has introduced a £2 a month charge on its Platinum Visa as has Northern Rock on its Base Rate Visa card. You pay the charge for the having the card no matter how often you use it.

This trend looks set to continue, but there are a number of things you can do to ensure you don’t have to fork out.

Play your cards right

The first thing to do is to open all letters and statements from your card provider. Too many of us just bin credit card statements and hope for the best.

But the law says card firms have to warn you If they are going to alter the charges on your card. If you don’t check the charges then you can’t say you weren’t warned.

Read the details of any changes to their terms and conditions. If they are going to add an annual charge without providing you with worthwhile additional services then it could be time to switch.

Shuffle your cards

Switching has never been easier. There are 156 cards on the market with zero percent balance transfers with the best deals often lasting from around 12 to 13 months. Barclaycard’s Platinum offer lasts a full 14 months meaning that lack of choice is not a valid excuse.

Do your research. If you have a balance on your credit card which you can’t pay off straight away then you should be looking for a low standard rate. It can be worth paying an annual fee if that is the case but you need to do the sums.

If you always pay off your balance you shouldn’t pay an annual fee. So go online and compare the deals out there. Spending a few minutes searching could provide you with a significant saving in the long run.

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