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Rate Tarts Losing Ability to Cherry Pick
A "rate tart" is someone who switches from one zero per cent
introductory credit card deal to another to avoid paying
interest; however they may be set to become something of the
past. Recently a number of the major credit card companies,
including Egg, Barclays, the Royal Bank of Scotland and MBNA have
introduced transfer charges for people who want to shift their
outstanding credit card balances to a new card to take advantage
of a zero per cent introductory rate.
Rate tarts will wait until the interest free period is about
to expire on their current credit card, and then check through
lists of providers to find another card they can switch to that
has another 0% interest rate introductory period. The growth of
financial comparison sites like uSwitch, Moneynet and Moneyfacts has made this
money saving behaviour easy to achieve.
The providers have effectively become victims of their own
success. As more and more card companies began offering
interest-free balance transfers, the card providers found that
they had to offer longer and longer interest-free periods to win
customers, which in turn meant less profit.
Analysts have recently estimated that rate tarts are currently
costing lenders £1 billion a year.
Financial director Stuart Glendenning said, "Charging a fee on
balance transfers is one way of recouping some losses, given it
is impossible to make money lending at 0 per cent if the customer
conducts no further transactions on the card."
Professor Merlin Stone of Bristol Business School, comments:
"Economically, some providers cannot sustain their current offers
of zero per cent interest which means they may have to remove
them or start introducing new charges to help reduce their
losses."
This is exactly what appears to be happening, Professor Stone
stated, "Research shows that in 2003, none of the cards offering
zero per cent APR interest on balance transfers applied charges
for transferring balances compared to around 11 per cent that do
today."
Perhaps in an effort to justify the reduction in 0%
introductory period on credit cards, Patrick Muir, marketing
director at Morgan Stanley Consumer
Banking, said: "Our research suggests that cardholders are
wising up to short-term deals, as the majority of those currently
switching or planning to switch are not moving from one
short-term offer to another."
Only eight per cent of people are looking to change their
credit card in the coming months, said investment bank Morgan
Stanley, however Stuart Glendenning advises, "Whilst not all have
gone down the fee route yet, my advice is simple: transfer your
balance for free while you still can."
Richard works in Edinburgh for bigmouthmedia, as well as
writing for the personal finance blog Cashzilla http://cashzilla.blogspot.com/,
and drinking too much coffee.
http://www.bigmouthmedia.com
bigmouthmedia head office:
51 Timberbush
Edinburgh
East Lothian
EH6 6QH
0845 130 0022
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