Credit card market seeing a resurgence

Competition in the credit card market is intensifying, with a big increase in the number of providers offering 0 per cent interest deals.

There has been a 450 per cent jump in the number of groups offering interest-free purchases for at least 10 months, rising from just two deals 12 months ago to 11 now.

There has also been a 20 per cent increase in the number of 0 per cent balance transfer offers available, up from 60 in June 2009 to 72 now, according to financial information firm Moneyfacts.

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The group said the credit card market had seen a "resurgence" in recent months, as providers felt comfortable doing business in the current economic environment, having taken time to assess the market.

It added that a number of providers, including American Express, Barclaycard and Egg, had also recently launched competitive reward schemes for their customers.

But despite the increase in competition, the average interest rate charged on credit cards has continued to rise, to reach 18.7 per cent, as a number of providers have hiked their rates since the beginning of the year.

Michelle Slade, spokeswoman for Moneyfacts.co.uk, said: "As the recession took hold credit card companies cut back on offering cards to new customers.

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"While a few competitive deals were on offer, very few customers appeared to be able to successfully apply.

"Competition has returned to the credit card market and card providers are actively trying to attract new business."

But she added that most credit card providers currently made significant revenues from using customers' monthly repayments to reduce their least expensive debt first.

However, from the start of next year, firms will have to use the money to pay down the debt upon which the highest interest rate is being charged – known as a positive repayment order.

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A number of providers have already introduced this, including Nationwide and MBNA.

Ms Slade said: "Unfortunately for customers interest rates continue to rise and are only likely to increase further as providers are forced to lose revenue from moving to a positive repayment order."

Sainsbury's Finance and Barclaycard are currently offering the best 0 per cent interest deal on new purchases, with cardholders not charged interest on anything they buy for the first 12 months, after which a rate of 15.9 per cent applies.

Tesco Bank and Virgin Money also have 0 per cent interest on purchases for 12 months, but charge higher rates after the offer ends.

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Clydesdale and Yorkshire Bank are leading the field on balance transfer deals offering 0 per cent for 16 months, while Santander, NatWest and Royal Bank of Scotland and Barclaycard have interest-free periods of 15 months.

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