Credit cards now more expensive

The cost of using plastic has risen in the past two years

Credit card customers have been paying higher interest charges and fees since default charges on their cards were capped two years ago.

In April 2006, the Office of Fair Trading (OFT) forced the banks to reduce nearly all their credit card default fees to £12.

But the financial information service Moneyfacts says the average purchase rate has risen from 14.9% to 16.4%.

The average rates for taking out cash have risen from 18.1% to 24.3%.

And the one-off fee for taking out cash has gone up at most card issuers from a typical 2% to 3%.

"Taking cash out on credit cards has always been an expensive way of borrowing, particularly as interest is charged from day one," said Michelle Slade of Moneyfacts.

"But with the 6.2% increase in the average rate for customers who are relying on cash advances to balance their monthly budget, it will make a bad situation even worse," she added.

Enforcement

Most lenders have abided by the industry's agreement with the OFT two years ago.

But the regulator recently had to enforce the limit on Clydesdale Financial Services, owned by Barclays, which provides store cards for a variety of retailers.

After a complaint from a member of the public, the OFT forced Clydesdale to cut its default fees on these cards from £22.50 to £12.

As well as raising the basic charges and fees, some banks have charged more by introducing an annual fee, for using the card abroad or even for failing to use the card much at all.

However, the industry points out that fees and charges should now be highlighted clearly in a box on every card account statement.

Rate tarts

Although the banks have been busy recouping some of the money they lost by being unable to impose higher default charges, other changes in the past two years have been to the advantage of customers.

Moneyfacts said there are now more cards offering introductory 0% interest deals on purchases for the first 12 months.

There are also more lenders offering 0% interest deals on debts transferred from other cards.

Some of these now last up to 15 months, whereas 12 months was the typical maximum length of the offer before.

However the ability of people to be "rate tarts", and move their debts from one card to another free of charge to take advantage of 0% rates, has all but been extinguished.

Nearly all cards now levy a one-off charge for the privilege, usually amounting to 3% of the balance being transferred.

The only lender currently that does not do this is the Britannia building society whose credit card has no balance transfer fee but whose initial 0% interest rate lasts for just five months.