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Major bank with nearly 2million customers to HIKE credit card interest rates in weeks despite borrowing costs falling
Plus, we've explained how to shift your debt and cut your interest payments
A MAJOR bank with nearly two million customers is hiking credit card fees in weeks.
This move comes despite a drop in borrowing costs, with economists forecasting that the Bank of England will introduce four base rate cuts by the end of 2025.
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The base rate directly impacts the cost of borrowing, affecting mortgages, credit cards, and personal loans.
Despite this, First Direct will increase the interest rates offered on credit card purchases, balance transfers and cash withdrawals from April 15.
The annual percentage rate (APR) for purchases will jump from 19.9% to 24.9%, adding an extra £0.35 per month for every £100 owed.
The same increases will apply to balance transfers and money transfers.
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Cash transactions will see a slightly larger increase.
The APR charged for those making cash or cash-related payments including withdrawals will rise from 24.7% to 29.7%, costing an additional £0.33 per month for every £100.
If you consistently pay your balance in full each month, this change won't affect you.
Customers will continue to get up to 56 days of interest-free credit on purchases.
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However, if you don't, these increases will lead to higher interest charges.
If you're currently in an interest-free period, your interest rate will remain unaffected until the promotion's expiry date.
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Customers unhappy with the changes can close their accounts without penalty before April 11 and repay their existing balance at the current rate.
After this date, the new rates will apply.
Alastair Douglas, chief executive of TotallyMoney said: "Although interest rates are expected to come down this year, as the government pushes the Bank of England to help grow the economy, there's a good chance that we might not see like-for-like benefits being passed on to consumers.
"It's also likely that as people continue to struggle with the increased cost of living, and three in five adults expect their finances to get worse this year, that we might see an increase in late payments and defaults on credit agreements."
While interest rates futures are pricing in just two 0.25% rate cuts from the Bank of England for the year, a 60% majority of economists polled by Reuters expect four 0.25% cuts, taking the Bank Rate to 3.75% by the end fo the year.
However, Rachel Springall, finance expert at Moneyfactscompare.co.uk, said: "Lenders traditionally reassess the rates they charge on debts as a reflection of their attitude to risk, as when the risk of defaults is elevated, the cost to borrow would usually rise."
First Direct won't be the only bank to have hiked its credit card rates in recent weeks.
How to shift your credit card debt quickly
By James Flanders, Consumer Reporter
UK Finance reports that we spend a whopping £2 billion a month using our credit cards.
While that little strip of plastic makes everyday spending easy peasy, it comes at a huge cost.
According to The Money Charity, the average credit card debt sits at £2,485 per household or £1,312 per adult.
And if you're stuck on a credit card with a high APR and only making the minimum repayments, you could be forking out hundreds of pounds extra in interest charges.
For example, if you owe £1,312 on your credit card and are charged 24.8% APR.
If you don't make any more transactions and pay £100 a month in repayments, you will pay off the card by September 2025 but at £207 in interest.
However, by hunting around for a better deal elsewhere and switching to a balance transfer credit card with a lengthy interest-free period, you can save yourself £162.
If the same person was accepted for a 28-month-long zero-interest credit card with a 3.4% balance transfer fee and made the same £100 repayments each month.
They would pay off the debt sooner, in July 2025, and only fork out £45 towards the 3.4% balance transfer fee.
Before taking out a new credit card or increasing the amount you borrow, it's vital to consider the consequences.
You should only borrow money if you can afford to pay it back.
It's always vital to ask yourself if you need to borrow before committing to a new credit card, personal loan or overdraft.
If you use a credit card, I'd recommend that you always pay off your balance in full at the end of each statement period.
Lenders have a responsibility to help customers who are in debt.
If you're in a debt crisis, your first point of call should be your lender.
They might help you out by offering you a reduced interest rate or a temporary payment holiday - so check in with your lender if you're struggling.
OTHER BANK CHANGES
Vanquis Bank made several changes to its credit card portfolio on January 24.
For example, the Balance Transfer Credit Card's standard purchase APR has risen from 33.5% to 40.9%.
Santander also made adjustments to its credit card offerings on January 22.
The Everyday No Balance Transfer Fee Credit Card has seen its standard purchase APR increase slightly from 23.9% to 24.9%.
However, on January 15, American Express reduced both its standard purchase and cash rates across a range of its credit cards including the Rewards Credit Card, British Airways Credit Card, Cashback Everyday Credit Card and British Airways Premium Plus Card.
The standard purchase APR dropped from 30.7% to 30.4%, while the standard cash rate decreased from 38.0% to 37.7%.
All banks were contacted for comment.
If your credit card company increases the interest rate on your card you should be given 60 days to reject the increase and pay off your balance at the existing interest rate.
There's several steps you can take to cut your credit card debt.
This includes checking comparison websites to check for credit cards offering lower interest rates.
However, there's a more savvy way to cut your debt and avoid paying any interest over a fixed period.
CUT YOUR CREDIT CARD DEBT
Credit card customers can put an end to paying interest for up to 31 months for a small processing fee of between 2-4% by shifting their debt to a balance transfer card.
Alastair Douglas said: "What's important is that if you're one of the 50% of people paying interest on their credit card every month, that you check to see if you’re eligible for a balance transfer.
"There are currently three banks offering up to 31 months interest-free if you move your debt to them, meaning you could stop paying interest until August 2027."
These cards make your debt easier to pay off because money saved on interest can be entirely put towards what you owe.
However, it's important to note that you can't transfer a balance between cards from the same bank.
You should always use an eligibility calculator before applying for a balance transfer card because every credit card application leaves a mark on your credit file and can affect your credit score.
The best cards currently available include one from MBNA which is offering a 31 month long 0% deal with a 3.49% fee.
Barclays is also offering up to 31 months at 0% with a fee of 3.45%.
To assess all the available cards, visit price comparison websites like MoneySavingExpert's Cheap Credit Club or Compare the Market.
Once you run your details through an eligibility calculator and you've been shown that you're likely to be accepted, make a formal application.
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To do this, you will need to provide your name, address and email address as well as details of your income so a provider can assess your eligibility.
You will also need to provide details of how much money you want to transfer to the new card, but you can often do this after you have been accepted.
How to get free debt help
There are several groups which can help you with your problem debts for free.
- Citizens Advice - 0800 144 8848 (England) / 0800 702 2020 (Wales)
- StepChange - 0800138 1111
- National Debtline - 0808 808 4000
- Debt Advice Foundation - 0800 043 4050
You can also find information about Debt Management Plans (DMP) and Individual Voluntary Agreements (IVA) by visiting MoneyHelper.org.uk or Gov.UK.
Speak to one of these organisations - don't be tempted to use a claims management firm.
They say they can write off lots of your debt in return for a large upfront fee.
But there are other options where you don't need to pay.
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