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10/09/10

Hike in credit card interest rates despite Bank of England rate freeze

While UK interest rates have been kept at 0.5% for an 18th month in succession, the rates being charged by credit card providers are rising.

A report by the BBC suggests that while Bank of England interest rates have dropped and frozen in the past two years, the average credit card rate has risen from 16.5% to 18.1%.

While the Bank of England's base rate has dropped over the last two years from 5% to just 0.5%, the average interest rate on a new credit card has gone up from 16.5% to 18.1%, a rise of more than 1.5%. And it's not just new customers; In an interview for BBC news, Malcolm Anderson from Cheshire revealed he has two different credit cards and he's been warned that the interest rates on both will go up later this month. Overall, more card users have had their interest rate raised than have seen it reduced.

Malcolm Anderson: "How can you increase the rates when there hasn't been a base rate increase for ages? It can only be greed or they want to continue paying super bonuses on a smaller customer base."

Our 30 million credit card holders are using them less for fear of getting into costly debt which means the providers get less income. Card companies also say there are more defaults - people who can't ever settle their bills.

Sandra Quinn from the UK Cards Association commented: "It's certainly true that credit cards are costing us more than they were four or five years ago. The total cost of what we pay involves base rate, but that's only a very small part of it. What we're also seeing is the more risk we present as individuals and that's partly the price that we pay for the economic climate that we are now in."

Two out of every five credit card users don't pay off what they owe every month so they incur interest charges which means that the rise in credit card interest rates is a growing cost for millions of shoppers.

The financial information company which compiled the credit card interest rate figures for the BBC says shoppers are right to be outraged.

Andrew Hagger from Moneynet: "I can appreciate that the banks have probably got to factor in greater risk at the moment in the current circumstances, but they're still making good profit so you would think that they could absorb this rather than having to pass it on to the customer all the time."

Malcolm Anderson is making his views clear: he's shredding everything he's heard from his card companies.