Interest rates on credit cards are at their highest level for 12 years

The average credit card interest rate has risen steadily to 18.8% in February, despite the main Bank rate remaining at 0.5%.

Card providers have pushed up rates owing to fears that borrowers are more likely to default. But recent Bank of England figures suggest the situation is not so acute, with rates at a three-year high.

Figures from the Bank of England revealed that there had been a huge rise in the amount of money that banks were writing off as bad debts on their credit cards.

This indicates that the main reason for rising credit card interest rates is the jump in borrowers defaulting on their debts.

This has led to a widening of the difference between these rates and the Bank of England’s Bank rate, which has stood at 0.5% since March 2009.

The Bank’s figures showed that write-offs doubled to £1.6bn in the third quarter of 2009, as banks acknowledged that this money would never be repaid by defaulting borrowers.

In each of the two preceding quarters, the figure had been about £800m. It totalled £3.2bn during 2008.

This has been reflected in the Bank of England’s figures that show the average interest rate on credit cards offered by banks and building societies has risen to its highest level since June 2006.

At the end of January, the rate was 16.4%. However, the Moneyfacts figures show that the typical credit card interest rate level is higher, at 18.8%.

This may be because the Moneyfacts figures show the current quoted rate from providers charted on its database, whereas the Bank of England looks retrospectively at the interest rate charged in the previous month.

It has proved much more difficult for borrowers to switch their debt to another card for a better deal.

Government proposals, published in October, include stopping card firms changing interest rates on existing debts and suggesting the minimum amount that must be paid off each month should be increased.

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