Credit cards Updated:
Last week, Moneyfacts revealed that interest rates on credit cards have hit a record high following the announcement of a cap on interchange fees. But, not only are consumers now charged an average of 20.6% APR – up from 19.9% APR a year ago – there are growing concerns that reward and cashback credit cards could soon become a thing of the past. So how can you make sure you don't lose out?
It's all down to changes to the way that providers accrue fees. The EU has placed a cap on interchange fees – the fees charged between banks for processing card payments – that will come into effect in October. The fee is designed to cover operating services and is charged during the transaction process, when your bank sends the payment to the retailer's bank and deducts a small fee.
But, the changes mean that there'll be a maximum amount that credit card providers can charge – it'll fall from as much as 1.85% per transaction to a maximum of 0.3% – and it's denting profitability. Unfortunately, consumers are paying the price: those who don't pay their balance off each month are being charged more for the privilege, and many reward and cashback schemes are being scrapped.
Capital One axed its cashback scheme for new customers yesterday (existing customers will also find their offer reduced or removed), and RBS recently announced that it's closing its YourPoints reward scheme from July. There are fears that others could follow suit, and that "if they decide that the offers are no longer sustainable, they will remove or reduce them quickly", said Rachel Springall of Moneyfacts.
There are even concerns that lengthy 0% interest deals could soon be a thing of the past, while cards that charge monthly or annual fees could become more popular as providers try to recoup their losses. Those that diligently pay off their cards each month to benefit from perks will be the hardest hit, added Ms Springall, so just what can you do to make sure you're still able to make the most of your spending?
If you're one of the customers who's lost out by Capital One withdrawing from the rewards market, the answer is simple – transfer to a new card! There are still some decent cashback offers available (we outline a few of them below), so you may not need to lose out at all. The same applies to RBS customers – you can still earn points for just under a month and will need to redeem those rewards by October, but there's nothing stopping you from getting a different card in the meantime.
If you don't use reward cards yet, then you won't be losing out, but you'll probably still want to maximise your spending. You could opt for cards that charge 0% interest on purchases if you don't pay off the balance in full each month, for example, or even low rate credit cards if they'll suit your needs better. Below, we outline a few of the top deals available to suit all circumstances, so you can make the most of your spending no matter what.
Alternatively, you may like to consider the popular Santander 123 Credit Card MasterCard, which comes with a £24 annual fee and offers 1% cashback for spending in supermarkets, 2% for department store spends and 3% for spending up to £300 on train fares and fuel. However, Santander hasn't yet ruled out the possibility of making any changes to its offer, so it could be worth holding fire.
Disclaimer: Information is correct as of the date of publication (shown at the top of this article). Any products featured may be withdrawn by their provider or changed at any time.
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