Barclaycard customers to see interest rates move in line with base rate hikes

Millions of Barclaycard customers will see their interest rates hiked automatically in line with any increases in the Bank of England base rate.

The credit card provider has started writing to its 10.5 million UK customers to tell them about a change of terms and conditions, which will create a clear link between the rate customers pay and any increase in the base rate.

The move means that from February 1, customers' interest rates will start to move in line with any change in the base rate.

As and when the base rate moves, Barclaycard will change customers' interest rates the day after their next monthly statement date.

Giving an example of how customers could be affected, Barclaycard said that if the base rate were to increase by 0.25%, a customer would pay 21p a month more in interest for every £1,000 of their balance.

Customers on special promotional rates, such as a 0% interest deal, will continue to get the promotional rate on their balance for the length of the offer.

Five million of the customers being written to are also being told that the interest rate they are currently on is being reduced.

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Barclaycard said the moves are part of efforts to simplify its products and bring more transparency for customers, so that it is easier to understand how the cost of their borrowing might be affected by any increase in the base rate, rather than allowing a series of base rate increases to bunch up and then hitting customers with a steeper rate.

While the rates Barclaycard customers are paying vary, the bulk of customers are on deals which charge an annual rate of around 18.9%.

Barclaycard said it is giving customers at least six weeks' notice of the change, which it feels is ample time for those who want to opt out of the change to close their account and go elsewhere for credit.

A Barclaycard spokesman said: "When the base rate changes, customers will know that their interest rate has changed accordingly.

"Alongside this, the interest rates for around five million customers will come down."

%VIRTUAL-ArticleSidebar-debt-advice%A spokesman for StepChange Debt Charity said many households are already living on a "financial knife edge" and he urged anyone who is worrying about struggling to cope if the cost of their debt increases to get independent help.

He said StepChange's research has found that last year, 14 million people suffered a shock to their income or a change in circumstances and 6.5 million used credit to cope.

According to financial information website Moneyfacts, the average credit card rate on the market has been edging upwards in the years since the base rate fell to a record low of 0.5% low in 2009. Back then, the average card rate was 17.7% - but it is now 21.5%.

Recent speculation as to when the base rate might start to rise has ranged from next spring to around a year away. Any increases are expected to be small and gradual.

Rachel Springall, a spokeswoman for Moneyfacts, said: "Any speculation on an interest rate rise can and will give providers the opportunity to work in costs for the future, which is why its so important for customers to keep an eye on their statements each month."

Ms Springall also pointed out that other changes taking place in the industry have also affected the deals customers are getting on their cards.

She highlighted the recent example of Capital One, which stopped offering cashback on its cards to new customers and removed or reduced some perks which it said were "no longer sustainable" in the light of moves in Europe to cap the fees retailers pay to process card transactions.

Ms Springall said: "Interest rates will eventually rise, we just don't know by how much and exactly when, so any concerned customers should take time out to assess their finances right now."

Helen Saxon, money desk leader at MoneySavingExpert.com, said many lenders are currently offering cheap 0% balance transfer deals and some cards will also allow consumers to shift debts without a fee.

She said: "If you are paying off credit card debt, you don't need to pay interest on it."