Credit cards Updated:
If you're a credit card holder, you should be keeping track of the fees and any rewards associated with it at all times. However, thanks to the upcoming EU charge cap on interchange fees, this is becoming even more important, as you could find that you start to pay more than you have in the past…
On 9 December, these interchange fees – or the credit and debit card processing fees that are paid by a retailer's bank to the cardholder's bank for each purchase – will be capped at 0.30% and 0.20% respectively. This is a lot less than the fees that some providers charge at present, the idea being that businesses will no longer have to pass excessive fees onto their customers.
The question is, will it work? The biggest concern is that credit card providers will look to recoup some of their losses that could be associated with the new ruling by actually charging customers more, not less, so consumers may not benefit so much after all.
A key fear is that credit card providers could remove lucrative reward deals and interest-free offerings, or even introduce or raise fees once the new cap is in place. This would be detrimental to consumers, especially as they're already paying sometimes hefty fees and interest rates for transactions such as cash withdrawals and purchases – check out the table below and you'll see just how rapidly a lot of fees and credit card charges have increased in recent years.
It may not be long before the changes have a detrimental impact, and in fact, some customers could already be losing out.
"The enquiry into card processing fees has been going on for years, so this cap will be good news for retailers who pay excessive charges," said Rachel Springall, finance expert at Moneyfacts. "However, there are real concerns that the drop in these fees will be passed on as a new cost to customers while valuable reward schemes will be scrapped.
"Since the EU consultation began this year we have already seen Capital One remove cashback rewards from its credit cards, while Tesco Bank, NatWest and RBS have all changed or withdrawn their point schemes. As of next year, Santander will also be increasing the yearly fee on its 123 credit card, which means consumers will be paying £12 extra for no additional reward."
It isn't just reward schemes that could be impacted, either – those who are currently benefiting from generous interest-free deals, for example, would be wise to take an even closer look at the fees charged for things like cash withdrawals, as they can often end up paying more for their credit cards in other ways
Our figures show that the average cash withdrawal fee has risen from 3.19% a year ago to 3.23% today, for example, while the interest rate charged has increased to 25.89%, up from 25.15% in 2014. Standard purchase charges are also becoming more expensive on most credit cards: the average purchase APR (which includes card fees) has now risen to 21.5% APR, up from 20.7% APR a year ago.
"With an estimated £51.1bn spent using cards [according to figures from the UK Cards Association] and contactless payments becoming more popular, it's clear that consumers are embracing plastic over cash. However, with charges likely to increase, consumers really do need to keep in mind the importance of paying more than the minimum monthly repayment, or they could end up being burdened with a long-term debt," concluded Rachel.
Keep an eye on the fees, interest rates and reward schemes associated with your credit cards, and if they stop being as competitive, compare the alternatives.
If you're looking to apply for a new card, remember that you need to have a good credit rating in order to be accepted. To find out if yours has a clean bill of health, contact a credit check provider, such as Experian CreditExpert, to investigate your credit report.
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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