Is your card really a credit to you?

If your credit card's an interest-gobbling monster, then it's about time you swapped to a more friendly, low-charging interest deal. By Simon Read

Against a background of falling interest rates, it is clear that discounted and capped mortgages - where rates are guaranteed not to go up but may come down - are proving more popular than ever. Many people are switching to them, increasingly opting out of variable-rate loans. But when it comes to credit cards, there is no such rush to switch into lower rates.

If you are one of those who don't pay off your credit card balance at the end of each month, why haven't you changed to another lender? Maybe you didn't know that there are better deals available on credit cards. Well, they are not marketed as such, but effectively the introductory rates offered on many credit cards now offer you exactly the same proposition as a fixed-rate mortgage does.

How? Take, for example, the two lowest rates currently available for people who switch their credit cards: Capital One Bank is charging 6.9 per cent APR until July, while RBS Advanta is offering 7.9 per cent APR until April. The APR is the "true" annual rate of interest charged on credit. How do these differ from a fixed-rate mortgage, except in the scale of the borrowing? There's no real difference at all.

Even Barclaycard, the country's biggest credit card issuer, long derided by a minority of cardholders as not being particularly competitive, has got in on the fixed-rate deal. It is charging a less-than-generous 18.9 per cent APR until the end of the year. Not surprisingly, Barclaycard's lack of competitiveness means it has been forced to lay off 2,000 of its staff recently.

Others offering enticing introductory rates include American Express's new Blue Amex, Birmingham Midshires, Co-operative Bank, First Direct, GM Card, Lloyds Bank and People's Bank, Connecticut. "With pressure on interest rates to rise further, it makes sense for credit card customers to fix on the lower rate while they can," points out Mark Austin of RBS Advanta, part of the Royal Bank of Scotland group.

The sting in the tail, of course, is the rate that the card reverts to at the end of the special-offer period. Unlike mortgages, where the variable rate differs across the market by just 1 per cent, credit card standard rates vary by as much as 10 per cent. So tying into the wrong card for long periods is going to cost you more than you'll ever save by switching to a short-term lower rate.

The answer, of course, is to switch to another card after the introductory period and either get another fixed rate or choose the lowest standard rate. Current winners include Alliance & Leicester's Diamond and Bank of Scotland's Visa, both at 13.9 per cent APR, and Co-operative Bank's Advantage at 12.6 per cent APR. Capital One this week launched its own no-frills "flat-rate" credit card, charging 12.9 per cent APR.

Rob Habgood, UK managing director at Capital One, says: "Most cards still charge over 20 per cent APR, which we think is both wrong and unfair to the customer. Our customers are not fooled by the reward schemes offered by some of our competitors as compensation for being offered higher rates."

Another way to make the most of the current low fixed rates available is to transfer existing loans to a new credit card. Some card issuers - including RBS Advanta and Barclaycard - will send you up to four cheques when you take out your card. Ostensibly, this is to clear your existing credit card arrangements, but there is nothing to stop you using the cheque to clear an expensive overdraft.

Barclays Bank, for instance, charges 18.8 per cent APR for an agreed overdraft. If you have an unauthorised overdraft then you'll currently be paying a stinging 29.9 per cent APR with the bank. The advantages of switching this debt to a 6.9 or 7.9 rate are obvious, especially if you can be diligent enough to pay off the balance over the length of the fixed rate.

If you are one of the millions of people who pay off your credit card each month and therefore have no worry about interest rates as you pay no interest, it could still make sense to switch your card. To start with, you may be paying an annual fee. Many cards charge pounds 10 or more each year, which you can save by switching to a no-fee card: there are plenty to choose from.

There are also additional benefits which may be attractive. Barclaycard's Profiles scheme, for instance, has been much criticised because you need to spend thousands of pounds each year to qualify for any of the prizes. But if you do put that much spending on your credit card each year then you may as well get the benefit, even if it only proves to be a toaster or personal stereo.