Despite the Bank of England's base rate remaining at a constant low of 0.5% for the past 16 months, the average interest rate on credit cards has risen steadily.
Major credit card companies including Barclaycard, MBNA, Egg and NatWest, have gradually increased their charges in recent months, meaning card users are now subject to the highest credit card interest rates for almost a decade. According to figures from the Bank of England, in June 2010 the average rate charged was 16.69%, which is the highest since February 2002 when the rate was 16.94%.
This means shoppers borrowing on their plastic are paying more than 33 times the Bank of England's rate.
James Daley, Money Editor of Which magazine, said credit cards users were also seeing the value of their rewards squeezed.
He said: ”Five years ago it was pretty common to get a one per cent cashback on cards; now only a handful are paying at that level and most have fees attached to them.”
Michelle Whiteman, a spokeswoman for the UK Cards Association admitted that rates had been “gradually going up” since they reached an all-time low of 14.8% in 2004.
She remarked: “That is a reflection of the fact that there are far fewer deals out there and because of the challenge of providing open ended unsecured lending in this climate.”
“It is also important to point out the APR is just a guide and people’s circumstances vary depending on their own agreement with the credit card company.”
She also stressed 61% of credit card customers paid off their cards in full at the end of each month and therefore side step any hefty interest charges.
It is believed the increased risk of unsecured lending during the recession and tighter regulation of the industry such as the introduction of a maximum £12 late payment fee has been the cause for the sharp rise.