Card rates tighten as defaults go up

27/04/2009

Increases to the interest rates demanded by credit card providers are being caused by rising default levels among customers, Moneyfacts.co.uk said today.

The financial advice website issued the comments in the wake of the decision of Egg to up its cash withdrawal charge from £3 to £5 from July.

Several other card firms have also hiked rates on their products recently - despite the Bank of England reducing its lending rate to an all-time low of 0.5 per cent.

Which? research showed that card rates have gone up by an average of 0.5 per cent in the past 12 months.

Michelle Slade, a spokeswoman from Moneyfacts.co.uk, said: "The risk of a customer defaulting on their credit card has gone up and we are paying for this extra risk through higher rates."

She added: "Taking cash out on your credit card should always be avoided as the interest rate is usually over 25 per cent per annum and, unlike on purchases, interest is charged from day one."

According to a report last week from uSwitch, the annual rate applied to cash withdrawals on credit cards has gone up by 3.05 per cent over the last two years.

Around 38 million such withdrawals are made every year in the UK.

Tags; Debt Management and Banking, Credit Card Lifestyle,

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