Will 0% balance-transfer deals still exist in a year? What else is happening to the credit-card market? One Fool shares his thoughts.
Every few months, one of my colleagues in The Fool's commercial department asks me for an email round-up of the credit-card market. My thoughts on where it is, where it's going, what credit cards we can expect to still exist in the future, and what new products will be available. This month, I wrote the following:
****************
'As I said some months ago, I think that the market will settle down for some time. I think that there won't be many big changes for the foreseeable future.
I expect that we'll continue to see a big focus on balance-transfer deals. It's incredibly competitive right now, so 12-month+ balance-transfer deals with 2-3% fees will be around for some time. Lenders will still continue to tighten their lending criteria, though, to stop rate tarts and to limit the risk of bad debt.
What we'll probably see are new products that aren't necessarily better for customers, but which look better; credit-card providers will be racking their brains for impressive-looking gimmicks, rather than actually offering substantially better terms and rates.
I still think that the only thing likely to significantly change the market is an innovative product. Perhaps Barclaycard's upcoming Oyster/contactless payment/credit-card combo will do that, at least for the London market. I expect it to significantly increase people's spending, just as credit and debit cards did. Other providers will see its impact and will want to work on similar technology and infrastructure as fast as they can -- if they can.
The rising base rate and bad debts won't have any effect on the small print or types of cards available, although typical APRs might rise. As I said before, most cards have already increased interest rates to make up for the cap on late payment charges, so I don't expect any more changes for that reason.
I still expect to see bundled cards (i.e. cards with a monthly fee that offer travel accident insurance, discounts and so on) pushed more heavily at some point in the future, which might capture a niche market. But hopefully Fools are too financially aware to go there.
I see no reason why lifetime balance-transfer cards, cashback cards, reward cards and 0% on purchases cards should disappear, although I reckon we could see changes to the small print, perhaps in the form of extra charges, to make them more profitable.'
************************
The more cynical reader might think that I've simply copy-and-pasted an internal email into an article because I saw an opportunistic way to save some time. Frankly, you're correct. I can't fault a healthy dose of cynicism.
But you can learn some useful things from the above, in particular:
- Beware of new deals or new types of cards that are promoted heavily; they may not be as special as they sound, or they may cost you more than you realise.
- Those of you who were preparing for the demise of 0% balance-transfer cards are, in my opinion, needlessly worried. However, you should keep your applications as low as possible, to hide rate tarting. Also, anyone with damaged credit histories may find it harder to get cards.
- Barclaycard's new Oystercard combo will arrive in September. It will probably be suitable for financially-organised Fools with little time. I should be giving you a full review when I've seen the small print.
> Compare credit cards through The Motley Fool. There are balance-transfer cards, 0% on purchases cards, cashback cards, reward cards, lifetime balance-transfer cards, and you can search the whole market!
> Five Ways To Make Money With Credit Cards