The credit-card market received a shake up this week when NatWest and the Royal Bank of Scotland (RBS) announced that in future they will only be accepting credit-card applications from existing customers. So is it worth becoming one, or are there better deals elsewhere?
RBS, the taxpayer-owned bank that owns NatWest, is making the change as it “fights against bad debts”, says Kathryn Cooper in The Times. When banks look at the credit history of an existing customer they have a far broader range of data available to assess an applicant’s risk than they do for new customers. So it’s not hard to see why RBS has changed its credit-card policy.
But it’s bad news for consumers. RBS issues a market-leading credit card offering a 15-month, 0% deal on balance transfers – this will now be unavailable to non-RBS customers. HSBC also has a 0% deal on balance transfers for 15 months, and that rate is also only available to existing customers. And even then, its customers won’t qualify if they already have an HSBC credit card. Likewise, RBS customers can’t transfer balances over to the zero rate from existing RBS credit cards.
But while the RBS credit-card deal is still appealing, it isn’t worth opening a current account with the bank to qualify, warns Lousie Bond of uSwitch.com in The Daily Telegraph. “Given that RBS fee-free current accounts pay just 0.1% interest on credit balances and charge 19.24% on overdrafts, this is uncompetitive to say the least.” Besides, there are plenty of other good credit-card deals that don’t require you to switch bank accounts.
If you have already built up some debt on a credit card, then switch it to a 0% balance transfer deal to avoid the extortionate rates charged on standard credit cards. The best 0% balance transfer deal available is from Virgin Money, which offers 0% for 16 months.
But watch out – 0% only applies for three months on new purchases, so if you won’t pay off the balance transferred within three months, don’t make purchases on the card. Once the 0% three-month period ends any debt accrued will start costing 16.6% APR. And due to a hidden trap called a ‘negative payment hierarchy’, any new debt won’t be deemed to have been paid off until all of your 0% balance transfer debt has been cleared.
A better bet is a separate credit card for purchases. For the best deals, turn to the supermarkets. Tesco’s market-leading Personal Finance Clubcard Mastercard offers 0% on purchases for 12 months. Sainsbury’s comes second in the best buy tables – the Finance Mastercard offers 0% on purchases for ten months.
One final tip: never take cash out on your credit card. The interest you’ll be charged is gut-wrenching. Tesco’s card, for example, will thump you with a rate of 24.9%, while Virgin Money’s card charges a hefty 27.9%.