Credit card interest rates on the rise

A new report has found that annual percentage rate (APR) on credit cards rose in April to 18.2 per cent, a steady increase from the rate of 15.7 per cent four years ago. The research, by independent financial research firm Defaqto, also compared the figures to the Bank of England base rate over the same time period, which increased from 4.5 per cent in 2006 to 5 per cent in 2008, before cutting the rate to deal with the financial downturn to its current rate of 0.5 per cent in April 2009, where it has remained.

However, there are new measures aimed at protecting credit card holders being introduced later in the year, especially the reallocation of payments, which should help those affected by the card rate rises.

Kevin Bray, insight analyst for banking at Defaqto, There is some good news for consumers following the recent announcement from the government about changes to credit card rules and in particular how payments are allocated. From January 2011 providers must allocate payments to the transactions attracting the highest rate of interest and this is expected to collectively save consumers between GBP300 million and GBP500 million.

There is also a chance that the new government will look at capping providers' interest rates, something the credit card industry is treating with caution. A spokesman for UK Cards Association said The Department of Trade and Industry looked at a cap back in 2004 and decided there was no need for one... We need to speak to the government to understand exactly what they mean.