Credit cards Updated:
Interest rates charged on credit cards have hit a record high amid fears for the future of reward cards following a new ruling by the EU.
According to the latest data from Moneyfacts.co.uk, the cost of credit card debt has just increased to a record high of 20.6% APR.
At the same time, the EU decision to introduce a new cap in October 2015 on interchange fees (a charge that credit card providers make to merchants to process credit card payments) is set to leave providers searching for alternative ways to recoup their costs.
Aside from adding to card fees and raising the underlying interest rate, one of the easiest methods would be to withdraw reward schemes or interest-free offers.
This could effectively seal the fate of reward and cashback deals, which have already been in decline.
At present, only 7% of credit cards currently on the market offer cashback and just 37% offer rewards. As recently as 2012, almost half of the cards on the market (47%) offered rewards.
"Unsurprisingly, treating customers to rewards is never a guarantee, as even existing card holders can have deals ripped away," said Rachel Springall, finance expert at Moneyfacts.co.uk, citing Capital One as an example, which announced its plans to withdraw cardholder cashback or reduce offers for existing customers from 1 June 2015.
"Some providers may currently be sitting on the fence as to whether they will pull their cashback deals, but if they do decide that the offers are no longer sustainable, then they will remove or reduce them quickly."
According to Ms Springall, it is those who diligently pay off their card debts each month to make the most of these perks who will take the biggest hit if their offer is pulled.
"However, they could instead consider moving to an American Express cashback card, as these are not directly impacted by the new ruling, unlike Visas and MasterCards," she adds.
"Consumers who do consider using a cashback card must keep in mind that the best deals charge annual fees, so they must make the most of the cashback to offset this cost."
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