'The cost of using plastic abroad'
September 28, 2007 at 11:25 am
Since the Office of Fair Trading ordered credit card companies to charge a maximum of £12 to overspending customers, companies have been making up for lost profits with a variety of charges applying to other types of spending. A recent report by consumer group Which? argued that credit card companies were being devious and employing underhand tactics to keep their margins high. Martyn Hocking, editor of Which? Money, said
“Credit card providers seem to be resorting to a raft of ingenious methods to recoup lost revenue following the OFT crackdown on penalty fees.”
Sandra Quinn, speaking for the industry body APACS, defended credit card companies, saying:
“We always said that charges would change as a result of the OFT ruling. We have been much more upfront about how charges are applied – every statement has a summary box listing charges and key information about charging.”
Whether or not credit card companies are being clear enough about their charges, thousands of people will come back from their summer holidays to credit card bills they didn’t expect. In 2007, British travellers will spend around £25 billion on plastic abroad, with fees and expenses adding an extra £500 million. This means that on average, consumers spending on plastic overseas pay an extra 2 per cent on top of their purchases, by no means an inconsiderable amount.
Two of the worst culprits in this area are Lloyds TSB and Natwest. Lloyds, (who also recently introduced a fee on dormant credit card accounts), charge 2.75% on overseas card transactions, on top of a £1 flat fee. Natwest has recently increased its fee to 2.75%, with its flat fee increasing by 50p to £1.25.
Most banks charge between 1 and 2% on cash machine withdrawals abroad. HBOS charges a flat fee of £1.50. It is worth noting that Nationwide stands out from its peers in this sphere – it makes no special charges for overseas use of plastic.
The other thing travellers should look out for is an extra charge from the retailer. ‘Dynamic Currency Conversion’ (DDC) works when the retailer gives the customer the option to convert their bill into sterling. This may be attractive for travellers inexperienced in using foreign currencies, and would like to know the sterling value of their purchases. However, the exchange rate offered by the retailer’s DDC can be up to 3% worse than the official rate.
The cheapest way of spending abroad is to buy foreign currency before you depart (the Post Office and Marks and Spencer offer some of the best conversion rates). However, this means you have to budget very accurately, which is not always possible. If you underestimate, you might be forced to buy more expensive currency abroad or use your bank card. If you overestimate, you will be left with foreign currency on your hands which you may have to convert on your return, incurring additional costs.
Before you go away, plan your currency provision. Find out how much your credit / debit card provider will charge you if you use your plastic abroad. This means you won’t have a nasty shock waiting for you on your doormat upon your return.
'The Sun and Master Card join forces'
September 24, 2007 at 11:53 am
The latest way to spend our money is a method known as pre-paid credit cards. Imagine a pay-as-you-go mobile phone sim-card or a London Oyster card, where you can only reap what you sow and only spend what you have. The credit card is unlike any other on the market as customers can’t rack up debts. The idea is to grant people who are unable to open bank accounts or be given credit cards for various reasons (often for mismanagement of their funds) access to a plastic card.
Tuxedo are a company affiliated with Mastercard and offer this service, also working alongside Newcastle Building Society. Tuxedo have also recently teamed up with The Sun newspaper to launch this pre-paid to all of its readers. Chief Executive of Tuxedo, Mark Simon, said, “The reason we looked to The Sun is that they have a very loud voice in the marketplace and can help probably more than any other media to explain this product to their readers.”
The pre-pay cards work out slightly more expensive than other credit cards (sometimes deducting around 3 pence for every pound in a transaction) but have the immediate advantage of customers being unable to rack up debts and are available to anyone. By the end of spring 2008, the plan is to have over 2000 high street bank branches offering a free ‘top-up’ faculty in their branches as well as in shops, by direct debit or via their work salaries.
The Sun will heavily promote the card in its newspapers and on its website and it will tempt its readers with a free £5 starting credit on their cards. The marketing campaign is thought to be costing The Sun £1 million over the next year. This might have something to do with the fact that other newspapers and publications have beaten them to it.
The Daily Mirror launched an identical service back in November 2006, partnering with a similar company to Tuxedo called Quidity. The card is Maestro / Switch but offers exactly the same service. Quidity has the added incentive that, similar to a supermarket points card, when customers use the card on a purchase at certain affiliated stores (for example, M & S, Dixons, Tesco) they then earn cashback for their purchases.
Virgin Money also launched a similar card in July 2007, which is affiliated with Mastercard. Even the magazine FHM, the media sport group Talksportand the record label-cum-nightclub The Ministry of Sound have similar pay-as-you-go credit cards. Considering such shifts, it seems that our paper money under the mattress has been replaced with a plastic sheet.
'How terrible is debt?'
September 21, 2007 at 3:15 pm
Sadly, debt has become an accepted feature of life for most of the UK’s population. Indeed, it may be shocking to note that debt in the UK has now surpassed the sum of one trillion pounds. In such circumstances, it is interesting then to speculate whether debt has become a serious crisis for Britain that we should all be worrying about, or whether the media has simply blown the issue out of proportion with pointless scaremongering. A number of researchers have recently argued that debt in Britain is more a sign of financial security rather than insecurity, and is in fact nothing to worry about.
According to maths experts Michael Blastland and Andrew Dilnot, whilst British people on the whole owe a lot of money, they actually own a lot as well. Most debt is minimal compared to how much wealth people have and it is likely not to be damaging in the least. It may seem ironic but often the reasons for debt are strategic: many are in debt because they are trying to ‘’build’’ money rather than lose it. Admittedly, there are some people who are genuinely in trouble but these are a minority amongst all those who owe money and yet are financially stable by anyone’s standards.
It is important to remember a few things about debt. First of all, due to economic growth and inflation, the number of pounds in circulation double every 15 years: it is therefore true that if there are more pounds around, there are ipso facto more pounds owed as well. Secondly, statistics rarely deal with the holdings of those in debt. For example, British people own more housing than anywhere in Europe. So, even if we owe lots on our mortgages, this property ownership and our overall quality of life makes us the final winners.
Though there are people who are still in trouble due to debt, it is still worth putting it all in perspective by considering that debt isn’t intrinsically a bad thing. What is most important is not necessarily to avoid debt altogether (as it could indeed be beneficial in many cases) but to be conscious of it and stay in control. As long as this is managed and you have some kind of plan for how to manage your debt, the concept no longer needs to be feared.
'Credit card companies introduce even more charges'
September 17, 2007 at 2:20 pm
There has been a worrying new trend over the past year in which credit card companies are introducing new charges to make even more money. As consumers’ association Which? has found, these “ingenious methods” for getting more out of consumers are due to a decision made by the Office of Fair Trading (OFT) to cut standard credit card fees from over £20 to just £12. Indeed, it seems that many credit card companies are managing to compensate for this loss using subtle additions to their fees.
The types of new methods used are numerous. For example in May, the UK’s biggest credit card issuer Barclaycard announced new fees up to £20 a year for low-usage, shortly followed by Lloyds TSB who similarly announced that they, too, would soon have a £35 a year charge for those who did not use their credit card enough.
Not only have there been new charges introduced for low use but many companies have raised interest rates for cash withdrawal and changed regulations for card use abroad. Some banks such as The Royal Bank of Scotland now charge cardholders a £12 fee if they move home without informing the bank – and only gives them two months in which to do so. Furthermore, some companies have even considered annual fees just for owning a card.
These charges will obviously affect millions of customers who are left with no choice but to pay them if they want to continue to use their credit cards. It is, however, a serious concern for many, that companies can charge, using any excuse.
Take the low use charge for example. None of the aforementioned banks have given a strict definition of what counts as low-use, and it basically takes those people out of the picture who have a credit card just for emergencies. Also, given this new trend to introduce more obscure charges, what’s next in the line-up, we ask: a fee for mistyping your pin? A fee for card replacement should you lose it? In many cases, the charges may be small but it does make one wonder about the inevitable build-up that will result from them at our expense.
The banking industry insist that what they have done is a fair result of the decision made by OFT which would have otherwise resulted in banks losing a collective £60m each year. As Sandra Qunn of the UK payments association Apacs assures us, there has been no sneaky practice of charging consumers without their knowledge. In fact, every new charge has been upfront, with every statement now listing all the key information about charging.
However, this will probably do little to satisfy those thousands of customers who have been landed with fees that look like nothing more than rip-off strategies to reclaim lost revenue. Given that there are over 75 million credit cards in the UK, with many of us having more than one, it will be necessary to make sure you know the rules for each one so you don’t get charged unaware.
'Do you need a premium credit card?'
September 5, 2007 at 10:21 am
No longer confined to the hands of affluent city businessmen and wealthy heiresses, premium credit cards have become all the rage in recent years. Undoubtedly, the associated ‘snob-factor’ has proved hard to resist for many. But are there any real advantages in having a premium credit card and, more importantly, should you invest in one? Here’s a rough guide to the world of premium credit cards.
Most people are put off premium credit cards because they believe that they would be unable to afford the costs involved. However, surveys suggest that these credit cards generally come with lower APRs.
For the most part, premium credit card holders must deal with interest rates of around 14% or 15% compared to the standard 18-19% faced by other card-holders. As such, low interest rates make these cards an excellent option for just about anyone who wants to save on interest payments.
Low interest rates on premium credit cards might come as a surprise, but providers have had little choice given the current state of the premium credit card market in the United Kingdom. With few takers beyond the rich and famous, financial institutions are now seeking to attract less affluent Britons. It is therefore hardly surprising that most providers of premium credit cards require that you have an annual income of a mere £13,000 per annum.
There are further benefits to be gained as well. However, in general, these are only available to those card-holders who pay off their balance in full each month. For example, it’s perfectly possible to get a credit limit of a few thousand pounds if you pay off your entire balance at the end of each month. If you fail to do so, however, your credit limit is likely to be significantly lower. Other advantages include free travel insurance and cash back offers.
Critics, however, argue that you shouldn’t let such benefits sway you to switch to a premium credit card. After all, you’ll only receive additional benefits if you continually pay for purchases using your premium credit card. According to Kathy Foley of The Times, “Real perks only come with the credit cards aimed at those individuals who don’t need credit cards.”
The most exclusive of premium credit cards are available only to a lucky few. These include the American Express ‘Black Centurion’ credit card which is on offer only to a few select clients chosen by the company. Another example is the Signia Mastercard issued by the Queen’s bankers, Coutts and Co. If you’re lucky enough to possess either of these cards you can enjoy perks from worldwide concierge services to the use of luxury airport lounges.
So think carefully before switching to a premium credit card. Whilst there are benefits to be reaped, much depends on your current financial situation and the extent to which you value perks and freebies.
