Mayday For Store Cards!

New rules for store cards take effect on 1 May. However, the UK's 11 million cardholders will still be fleeced.

If you're one of the eleven million people in the UK who have a store-card account, then I have some good news and bad news for you.

The good news is that new rules governing the promotion and administration of store cards take effect today. The bad news is that these rules are unlikely to leave you better off, which is why I will continue to refer to store cards as the Devil's debt!

In March 2006, following its enquiry into the store-card market, the Competition Commission warned that interest rates charged by store-card issuers were excessive. Indeed, it estimated that cardholders were being fleeced of at least £55 million a year by greedy card firms. Thus, it set out a package of measures designed to provide cardholders with better information and greater transparency.

New Regulations

Let's take a look at these new regulations. With effect from 1 May, store-card issuers that charge annual percentage rates (APRs) of 25% or more must:

• include interest-rate warnings on monthly statements, advising cardholders that cheaper credit is available elsewhere; and
• provide a Summary Box (also known as an Honesty Box or Schumer Box) which displays interest rates and penalty charges, and carries a warning about the dangers of making only minimum monthly repayments (MMRs).

Here's the thing: although the Competition Commission considers annual interest rates of 25%+ to be too high, few store-card issuers have cut their rates. Over the past fourteen months, the average interest rate for a store card has fallen by a fraction of a percentage point, which is a bad joke. Thus, store-card interest rates remain stubbornly high, as the following table demonstrates:

Store-card interest rates

Source: Moneyfacts magazine and company websites

As you can see, seventeen of the thirty cards listed above (that's 57%, or more than half of the total) charge interest rates in excess of 25% APR. However, at 23.9% APR, the average interest rate is just below this threshold. Furthermore, it's worth noting that the average annual interest rate on a credit card is roughly 16.5% APR. Therefore, only two store cards charge lower interest rates than a typical credit card does.

Of course, used wisely, store cards do provide valuable benefits. For example, most offer interest-free credit lasting from between 51 and 59 days if you pay off your balance in full each month. Also, they provide exclusive access to loyalty schemes for cardholders, such as special offers and events, sale previews and promotions, competitions, prize draws and so on.

So, cunning card players can use store cards to their advantage, grabbing discounts and money-off deals, while paying no interest and avoiding massively overpriced payment protection insurance. However, if you lack financial discipline, then store cards are nothing more than a menace and should be avoided at all costs.

Of course, if you already have one or more store cards with an outstanding balance, the smart thing to do is to transfer these debts to one of the eighty or so credit cards which offer an extended introductory interest-free period on balance transfers. Earlier this week, I tracked down the best 0% balance transfers in Enjoy a 14-Month Break from Interest.

Finally, when making future purchases, you can dodge interest for up to a year by using a '0% on new purchases' credit card. Why not wave goodbye to paying interest today?

More: The Lowdown On Store And Credit Cards