Credit card rates give banks large profits each year

January 8, 2007

One of the main ways that banks earned their profits in 2006 was through credit card rates. It is thought that they earn an extra £1bn a year from the rates charged on 69million credit cards within the UK.

Figures show that less than six people in ten do not pay back the full amount which they owe on their cards and that means that interest make the debt rise. The worrying thing is that if the banks were to increase their changes by just 1% up to 16.9%, they would earn an extra £240million.

Some banks already charge higher than average rates with Capital One charging 34.9% for purchases. That figure was introduced last year after a price rise of around 5%. Halifax have also increased their prices by around the same amount so it is likely that it will not be long before other banks follow suit.

The reasons behind these price rises seem to vary from bank to bank. Capital one blame it on the amount of bad debt its consumers have, whilst Halifax say they offer a variety of cards for both spending and making transfers. So, if you are looking to avoid these price rises with them, it would be worth looking at the various offers they have beforehand.

Unfortunately you do not only have to worry about the interest rates. You also have to worry about charges the banks are making for withdrawing money. Despite the protest from many consumers, banks still continue to higher their withdrawal charges with EGG being the worst by increasing charges by 6% to 22.9%. Other banks have increased their charges by 5% so there really is no escaping these ridiculous charges.

So, really there is no way to avoid these charges other than to pay off the balance in full as soon as you possibly can. With this being extremely hard to do for many people, it seems that bad debt will continue to rise unless something is done soon.