Money news, advice and predictions for savers and spenders.
By Jeremy Gates
Credit cards have mostly been available for free since US banks muscled into the UK market in the 1990s, but that might be about to change.
On average, British adults own about 2.5 cards each. There are 165 million of them in total, says payments trade association APACS, including 67 million credit cards, 72 million debit cards and 20 million ATM-only cards, which are all used to spend more than £350 billion per year.
As finance - particularly unsecured loans - becomes harder to get, however, the credit card story may face another twist.
This week Egg relaunched its premium plastic card, the Egg Money World MasterCard, and it could change the way we use cards in the longer term.
A decade ago, the Egg Card, as the first online credit card, guaranteed that it would make internet shopping easier. It was also the first to offer 0% interest on new purchases and balance transfers as an introductory offer.
The latest Egg initiative, however, is getting a more sceptical welcome.
Annie Shaw at financial advice website CashQuestions.com warns that it should be seen as "a stalking horse" for the reintroduction of annual card fees.
"It is the natural consequence of campaigns of recent years against penalty charges levied on customers who break agreements, as card companies seek innovative ways to bolster profits," she says.
"Watch out for more fees from other providers, if Egg gets away with this."
The new Egg card charges a £1 per month fee, or £12 per year - and promises a 1% cashback, based on the amount spent, to a maximum £200 per year.
Other benefits include a one-year extended warranty on electrical goods costing at least £50, which could mean the £12 annual fee is soon reclaimed. And a Price Promise means Egg might refund the difference when you buy something costing more than £50 on the card and find it cheaper elsewhere.
Still, Moneysupermarket.com's Peter Harrison also has doubts about the deal.
"Egg is the first major card provider to introduce fees in mainstream products. This is only the tip of the iceberg," he says.
The card appears as all providers tighten terms. A cull of 0% balance transfers has seen Capital One leave this sector altogether, while RBS offers it only to existing customers. Tesco has cut back availability of its 0% offer too.
Andrew Hagger at Moneynet.co.uk thinks the new Egg card has both good points and bad.
"I hope it doesn't set a precedent, so that paying a fee for a card becomes the norm," he says.
"Most cashback cards offer 0.5% of spending, but to take full advantage of this deal, you'd need to spend an average £1,670 per month to get the maximum £200 rebate. That's a fairly heavy level of spending, around £20,000 a year.
"You must also pay off the full balance each month, otherwise interest charges cancel any benefits earned."
However, Louise Bond at comparison site uSwitch.com sees another attraction in the small print.
"The card offers a competitive life of balance rate of 8.9% on transfers by October 1," she says.
"This means consumers will pay £145 interest on the average balance transfer of £1,846 - £143 less than interest incurred on a credit card average APR of 17.69%."
While balance transfers are treated relatively generously, Egg will charge interest on new purchases at 16.9% APR, unless the balance is cleared in full each month.
Specific aspects of the Egg Money Master Card can be bettered by other products.
Take cashbacks: the American Express Platinum Card doesn't charge a fee and pays an introductory 3% cashback (to maximum £100) in the first three months, then 0.5% on the first £3,500, 1% up to £10,000 and 1.5% on £10,000-plus.
Better rates on balance transfers than Egg's 8.9% are Barclaycard Simplicity (6.8%) and Leeds BS (5.9%), while 0% transfer deals still available include Virgin Money (free for 16 months) and Santander (15 months).
In any case, as Hagger points out: "It's possible to get a personal loan rate around 8% APR at the moment, so this isn't the strongest feature of the card."
Given that Egg suddenly cancelled the accounts of 160,000 customers in February 2008 after a risk review, applicants are likely to need a pristine credit record to get its new card anyway.
But Egg, acquired by Citibank from Prudential for £575 million in January 2007, has history as an innovator. If it is ahead of the trend this time, millions of other cardholders could soon be paying for their plastic.
:: Information: Details of Egg Money World MasterCard are on www.egg.co.uk; www.Moneynet.co.uk; www.moneysupermarketcom; www.CashQuestions.com answers personal finance-related questions free of charge.
Poundnotes
:: Many canny savers who locked into bonds paying around 6.5% a year or two ago are coming to the end of their term and, at long last, some decent payers are starting to emerge. Yorkshire BS has launched a range of fixed-rate bonds paying 5% gross AER on three years, 5.15% on two years and 5.40% on five years, all with a minimum deposit of £100.
It is important for savers to find a decent rate. As a market, they can earn an extra £7.7 billion a year by checking the rate (AER) paid on their savings and moving to a better deal, reckons Kevin Mountford at Moneysupermarket.com.
He thinks millions of savers are languishing in accounts paying as little as 0.25% AER when a five-minute telephone call could boost their total interest earned by more than £200 a year, perhaps by another provider. In current circumstances, he urges a weekly check on the how much savings out money is earning.
It is also important to move quickly when you find a better rate.
Andrew Hagger at Moneynet.co.uk says Leeds BS's 3.05% online easy access saver launched on June 24 was pulled within two weeks, while the Coventry BS e-save account for over-50s paying 3.25% was withdrawn within five days!
However, he likes the Barnsley BS five-year bond paying 5.10% for five years, which can be opened with just £100. And ICICI Bank offers 4.60% on a three-year bond, up from 4.35%.
Now the Post Office has entered the fray, with its Growth Bond Issue 9, offering one, three and five-year terms and rates up to 4.3% AER on minimum deposits of £500. The new bonds are available for only a limited period at all UK Post Office branches, by telephone and online.
For bigger depositors, the Investec High 5 account, based on the latest Moneyfacts.co.uk 'best buy' table for savings accounts, currently pays 3.20% AER. But savers need at least £25,000 to qualify.
Post Office Growth Bond enquiries: 0800 169 7500 or visit your local Post Office branch.
Investec High 5 Account: 0845 366 6333 and www.investechigh5.co.uk.
:: The reluctance of many lenders to reduce fixed-rate mortgages, despite falling money-market rates over the last month and lessening fears of imminent inflation, may mean that homebuyers needing a mortgage would do better to consider a tracker loan, says Ray Boulger at leading UK mortgage broker John Charcol.
"Many fixed rates are now beginning to look expensive and trackers generally look better value for borrowers who don't need the security of a fixed rate," he says. "Too much of the rise in interest rates is now factored into fixed rates".
Boulger says the most attractive trackers may be lifetime ones, either with no early repayment charges, like HSBC, or a low ERC, for example Woolwich and Abbey.
Both Nationwide and RBS trackers have loans with the 'droplock' option, enabling borrowers to fix at a time of their choosing.
"Any of these options will leave borrowers free to switch to a fixed rate without significant costs when fixed rates start to look attractive again," Boulger says.
A riskier option might be a two-year tracker as the ERC will then only last for two years.
Charcol enquiries: 0800 718191 and www.charcol.co.uk.
:: Can small investors really hope to make much money out of windfarms?
All the talk this week of radical new policies needed to beat climate change from Energy and Climate Change Secretary Ed Miliband, has convinced Emma Howard Boyd of fund manager Jupiter Asset Management that there will be a wide impact of these policies which extends far beyond companies already regarded as 'green'.
Jupiter launched its Ecology Fund over 21 years ago, in 1988, and claims a return of 320% since then.
However, stock tipster Richard Hunter at Hargreaves Lansdown feels the impoverished state of the public finances is a more pressing worry for investors. In his July 'Stockhunter' note to HL customers, he says share prices could be significantly affected when the Government eventually decides to raise taxes.
He thinks utility companies like United Utilities and Severn Trent might face higher tax bills, along with perennial targets of alcohol (Punch Taverns, Mitchells and Butler) and tobacco (BAT, Imperial).
Meanwhile, continued Government spending could boost firms in the health sector (GlaxoSmithKline, AstraZeneca), education (Pearson, RM Group) and infrastructure (Balfour Beatty, Carillion).
:: Around 3.4 million adults in the UK could be facing serious debt problems, with credit cards the main source of trouble, and nearly half of them (48%) are likely to pay for a debt solution to get out of trouble. But they could pay more than necessary to get back on their feet again, says the website talkaboutdebt.co.uk.
It claims that nearly two-thirds (65%) of those in trouble opt for a fee-charging debt management plan, and many will pay more than necessary, due to extra interest and charges.
Around 22% of those in serious financial difficulties take out an Individual Voluntary Arrangement agreed between the client and companies which are owed money.
The fee for establishing the IVA is added to monthly repayments, and if payments are not maintained, the end result can be bankruptcy - but talkaboutdebt.co.uk thinks they provide quicker, easier solutions in some cases.
However, the boom in IVAs came to a juddering halt when High Street banks resented the large chunks of debt which were being written off.
Insolvency specialist Andrew Redmond says: "There is no one-size-fits-all solution to personal debt problems, which is why it is important to get free and impartial advice from a trained advisor to identify the debt solution right for each individual."
Further information: www.talkaboutdebt.co.uk.
:: High-five savers:
Phone No Rate Account Period Deposit Interest paid
Yorkshire BS 0845 120 0100 5.40% (F) Fixed Rate Bond 30/09/14 £100 Yly
Barnsley BS www.barnsley-bs.co.uk 5.40% (F) Online Bond 30/09/13 £100 Yly
Aldermore 01372 736700 5.11% (F) Fixed Rate Bond Five Year Bond (P) £10,000 Qly
United Nat'l Bank 0800 218 2266 3.50% Three Month Gold Deposit Three Months £1 Half-yearly
Manchester BS 0161 9233 8015 3.26% Premier ISA 45 Issue 1 45 Days £1,000 Yly
:: Top-five borrowers
Phone No Rate Period Max% Adv Fee Incentive
HSBC 0800 494999 2.49% discounted for two years 60% £249 Yes
First Direct 0845 610 0100 3.09% variable for term 75% £999 Yes
Co-operative Bank 0800 633 5286 3.24% to 30/09/12 75% £995 Yes
Loughborough BS (FTB) 01509 610707 3.39% for two years 80% £449 Yes
First Direct 0845 610 0100 3.69% for term 75% £299 Yes
Code:
*F - Fixed
*P - Operated by Post
*B - Operated by Post/Telephone
*T - Operated by Telephone
*W - Operated by Internet
*H - Operated by Internet/Telephone
*S - Available only to those aged 50 or over
*R - Available to those aged 60 and over.
:: Source: Money£acts - Tel: 01603 476 476 (All rates subject to change without notice).
