Modern life is full of irritations. When asked to name the most frustrating bugbears in life, people will come up with things like computer freezes, traffic jams and automated telephone calls, but among the most commonly-mentioned daily annoyances are unexpected fees and charges.
These are particularly likely to get under our skin, because unlike a missed parcel delivery or people playing with their phone when you're talking to them, this irritation could cost us dearly. A new credit card has taken note of how loathed these unexpected charges are, and been designed to do away with them altogether.
We've teamed up with NatWest to explore why they have banned teaser rates, and what it means for you.
Teaser rates pull you into using some credit cards by offering an interest-free period - after which the rates are hiked up dramatically.
Those offering 0% interest on balance transfers can catch us out in a number of ways. The first is that they lull you into a false sense of security: somehow you feel as if you have dealt with this debt just because its not currently costing you anything, so you don't get round to paying it off before the payment wall kicks in - and suddenly you're left paying a relatively high rate of interest. The 36% of people who keep their balance on a 0% card for 7-12 months after the deal has expired, with an average balance of £2,403, pay about £360 in interest.*
The second issue is that we simply forget that this interest-free period isn't going to last forever. When we first take out the deal we tell ourselves that we'll switch the debt to another interest-free card when the introductory period ends, but according to NatWest, two thirds of us fail to do so, and we end up paying interest instead - possibly over 20%. In fact, they found that the average person who takes advantage of a card with 0% interest on balance transfers has £9,000 of debt on multiple cards, and is increasing that debt rather than paying it down over time.*
To make matters worse many of those cards offering 0% interest on balance transfers charge high rates of interest on purchases, so that those who are tempted to spend on the card could be paying around 18% or more for the period.
And to add insult to injury, in order to take advantage of the interest-free period we are likely to have paid a balance transfer fee. NatWest says this can be up to 3%, building up the outstanding debt still further.
Those cards offering 0% on purchases also have their pitfalls. You might plan to make a single purchase and then pay it off before interest kicks in, but in reality many people don't get round to clearing the debt before they start paying interest.
The other hitch is that people end up being tempted to make more purchases, without a sensible plan for repaying the debt. Either way, at the end of even the most generous interest-free period, you can be left paying more than you expected.
Banning the teasers
Many of us like the idea of interest-free periods, and banks can make major sums from the mistakes we make with them, so in the past credit card providers have been falling over themselves to offer them.
One bank, however, has taken a stand. Natwest has banned all introductory teaser rates from its cards. Moray McDonald, Interim Head of Products and Marketing, said: "We're hunting through everything we do across the bank to make sure we are doing the right thing for our customers. The credit cards industry is absolutely dominated by teaser rates, trapping people into a spiral of debt that they never pay down; it's not good for our customers, and it will play no future part in this bank. Removing these teaser rate debt traps, and launching a new transparent, low rate credit card will be a big step towards earning back our customers trust."
The low rate card is the NatWest Clear Rate Platinum credit card which has one simple, low rate of 6.9% p.a. (variable) on purchases and balance transfers. There's no balance transfer fee, just a simple annual fee of £24, which helps you see clearly exactly where you stand. The card isn't designed with attention-grabbing introductory offers, so there are no nasty surprises when a 0% period runs out and no need to move around to avoid higher charges after a 0% period. You'll need to factor in the cost of the fee.
Representative example: Representative 11.1% APR (variable) based on an assumed Credit Limit of £1,200. Standard interest rate for purchases: 6.9% (variable). Annual fee: £24.
Your actual credit limit and the interest rates you receive will depend on our credit assessment of you and the interest rate could be up to 14.9% p.a. (variable). The APR you'll receive will be based on your interest rate and credit limit and will take in to account the annual fee, so may be higher than Representative 11.1% APR (variable) which also takes into account the annual fee. Interest on fees and charges is payable in line with our terms and conditions. Balance transfers are limited to 95% of your available credit limit.
Does it suit you?
It won't suit everyone. There are a few people who currently use interest-free periods exactly as they first intended to. They may move the debt around to avoid paying interest on a debt. Alternatively they borrow the money at 0% and pay it off before the higher interest rate kicks in. They are highly organised and efficient, and they put the time and effort into it, no matter how busy their life gets.
However, for those people who sometimes find life gets on top of them, or aren't always quite so efficient when it comes to their finances, it's worth adding this sort of deal into your considerations when you're shopping around for a new credit card.
To help you do the maths, NatWest has a credit card calculator. You input the typical balance you pay interest on each month and it will show you how much the Clear Rate card will cost you. It will also let you input the interest rate you're currently being charged on purchases and balance transfers, and it will show you whether the card will cost you more or less than your current one.
To apply for the NatWest Clear Rate credit card you need to be aged 18 or over, a UK resident and earn at least £10,000.
Visit NatWest for further details.
*Source: Argus Information and Advisory Services. Feb 2014