Monday, 7 November 2011

Credit card - tied interest rates - it's win/win for the bankers

Interest rates are at an all time low here in the UK. This low interest rate mostly applies to savers who are paid at 0.1 to 2 % per year. Credit card lenders are routinely charging 2 % per month and are currently working through changes that will increase those charges further.

The current Bank of England base rate is 0.5% per year. This rate cannot realisticly go much lower. This interest rate history contrasts credit card charges and interest rates that have been going up steadily for years.

A recent change announced by Lloyds TSB Platinum is as follows...

"We wrote to you in June about how we're linking the the standard interest rate on your credit card to the bank of England base rate after 26 November 2011.

If the base rate changes after this date, your interest rate will increase or decrease by the same amount from the last working day of the months in which the base rate changes. ......"

So when the interest rate goes up ( remember that the rate can't go down far from here) the credit card interest rate charge will go up to match. So your credit charge interest rate is now locked to something that that is only ever likely to go up and cost you more.

This is an interesting tactic that was never applied when interest rates were falling. The credit card maintained high interest rates saying that the costs were based on the "risk" of the loan. This increasing spread between borrowing and savings has been increasing for years; something that only benefits the bankers.

What's more with this new change the credit card company have an an excuse to "blame" the rate rises on an external factor. So it's win/win for the bankers, no change there then.


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