Credit card issuers introduce a new way to calculate interest

By UK CreditCards.com

In a move that may lead to a fundamental change to the way credit cards are priced in the UK, the Bank of Scotland and Halifax are planning to change the way they calculate credit card interest rates. Beginning in August 2011, credit card borrowers with both banks will move to a single personal rate based on the average amount of interest charged to their card in the first quarter of 2011.

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Some experts say they are concerned that rates on UK credit cards may rise as a result of the announcement.

Bank of Scotland leading the way on changes to UK credit card pricing
"This is straightforward and fair pricing, which will give our customers far greater transparency and control over their interest rates," says Ken Stannard, the Bank of Scotland's credit card director. 

The bank believes the move will help users understand their borrowing costs. New rates offered to customers will be made up of the Bank of England base rate plus their own personal rate. The bank's credit cards will also have one single rate, rather than different rates, for cash withdrawals and purchases.

Whilst experts believe this change will offer consumers more certainty in terms of how much they pay in interest, they also believe that credit card interest rates are likely to go up as well.

A short-term solution to higher interest rates
Whilst the pricing of Bank of Scotland and Halifax charges may change, consumers will still be able to shop around for deals at the Bank of Scotland and other providers. Introductory offers -- such as credit cards with 0% interest on purchases or balance transfers -- will still be available; so consumers may want to transfer their balance to a card with a promotional offer in order to temporarily avoid the higher rates. As always, it is vital that you check interest rates on every card before signing up and shop around for the right deal for you.

See related: Do you know your credit card's APR?; Cardholders advised to plan for a rise in interest rates

Published: 26 May 2011