July 9, 2006

By Peter Kenny

The recent improvements on some of the credit card deals on offer in the UK have taken many financial analysts by surprise.

MBNA have increased their 0% balance transfer offer to 12 months while at the same time introducing a 0 per cent deal for any purchases made in the initial 3 months of the account opening. The two cards to benefit are the MBNA Platinum Plus MasterCard and the MBNA Platinum Rewards Card. Other credit cards operated by MBNA to benefit from these improvements include Sony and Virgin.

The addition of the 3 months 0% purchase offer is interesting.

Whenever a credit card is used to transfer a balance, it is always highly recommended that a separate credit card be used for any purchases. The reason for this is the method that many credit card companies and banks use to allocate payments. The majority of credit card companies will pay off balances that incur the lowest rates of interest first. This means that if a balance has been transferred to a credit card and the same credit card is used for any purchases, any payments made to the credit card account will be used to pay off the balance transfer first. This of course means that any purchases will be charged at the full APR.

There are already a number of credit cards available that offer 0% deals on both balance transfers and purchases; however, these deals are normally for the same period of time.

With the 0% purchase offer substantially less than the balance transfer deal there is a high chance that because of the out of sync offers, many consumers could incur extra interest charges, by forgetting when their 0% purchase deal ends.

While MBNA should be applauded for improving their credit card offer and at the same time reducing their default charges to £12, care should be taken if their credit card is used for purchases as well as to transfer a balance.