Consumers have been told to shop around for the best deals after Sir Richard Branson’s Virgin Money hiked its credit card rates nearly 50 per cent.
The banking group, which has just bought one of the UK’s struggling banks Northern Rock, said customers had a choice. They could pay up for the increase or pay off their debts.
The Virgin move is the latest sign that banks globally will start increasing lending rates. Although the European Central Bank, the US Federal Reserve and the UK’s Bank of England, are keeping interest rates at historically low levels there is evidence that the inter bank rate, the rate at which banks lend to each other, may go higher.
In recent weeks major banks and credit card companies have begun to signal that they will need to increase the rate they charge customers. Banks are also coming under pressure to raise the interest rate for savers.
The Virgin card comes from MBNA and the charge for purchases will go from 16.8 per cent to 24.9 per cent. Although some experts had been warning that credit card rates were bound to go up the move has still shocked customers. Following the take-over of Northern Rock Sir Richard seemed to indicate that he would look at new ways of doing banking by bringing “fresh ideas” to the table.
One customer said :”I think it’s fair to say that this new idea looks just like the old idea of making as much money as possible.” A spokesman for Virgin said the company kept all it’s financial product range under constant review. He said accounts were judged on a level of risk so some customers would receive notification that they would have to pay more if they kept the balance. The alternative was to pay it off.
Consumer groups said it highlighted the need for consumers to think carefully about how much credit they ran up on cards. The best thing was to pay down as much debts as possible, but also shop around to if you can get a better rate elsewhere.