Read where the credit-card market is going and find out about an innovative card that is already available.
If you put every single credit card in the UK end-to-end, they'd stretch so far that probably half of them would sink under the sea. Fact. And a jolly good thing too. We have too much debt on those things.
Thing is, credit-card facts don't get much more interesting than that, but many Fools considering whether to compare credit cards now or to wait for better deals may instead be interested in my perception of the credit-card market, particularly current trends and the future. Here I go...
What's happening in the credit card market?
The market will settle down now for some time. Rising interest rates and bad debts won't have any effect on the small print or types of cards available. 0% cards (complete with balance-transfer fees) are here to stay for the foreseeable future, as are cashback, reward and lifetime balance-transfer cards.
We should see few changes to most credit cards as a result of last year's cap on late-payment charges (see Reclaim Your Bank And Card Charges), because most providers have already more than compensated for this by increasing interest rates. However, as a result of the cap, we might see package cards (i.e. cards with annual charges that offer loyalty schemes, insurance and other extras) pushed more heavily, although this won't be as pronounced as the increase in bank accounts that charge fees.
An innovative new credit card
The only change likely to significantly affect the credit-card market in the foreseeable future is if an innovative product comes along. Something that aspires to this level of innovation is the Post Office Credit Card.
Some of the details are fairly standard, such as its 0% offers: 8 months for balance transfers with a 2.5% balance-transfer fee and three months on purchases. (Remember that The Fool normally recommends you don't use 0% cards for both purchases and balance transfers. See Don't Fall For This Card Trick!)
The 'typical' APRs shouldn't matter to Fools, as you shouldn't use credit cards for long-term borrowing unless you have a very low rate card, such as a lifetime balance-transfer card. However, for the record, the typical APRs are 14.9% for the Post Office's classic card and 13.9% for the platinum card. (You need to earn over £20,000 to be considered for the latter.)
The card gets more interesting from here. For two purchases a year between £500 and £2,000, you can contact the Post Office and switch those debts to a special fixed rate of 6.8% per year. This is repayable over twelve months, so, in this way, the credit card acts rather like a loan with a rather competitive fixed rate of interest.
Unfortunately, you can't reduce the interest you pay on the loan by clearing the debt early. Therefore, if you make a purchase for £1,000 and make the switch to the loan, you can expect to pay £30 in interest even if you find a way to pay the loan off in the first month!
The Post Office's card stands out further because it does not apply a foreign currency conversion fee anywhere in the world. Every other credit card provider but two (Nationwide and MorganStanley) charges this fee, usually 2.75%. This is handy if you want to pay for items on your card overseas, or on foreign websites.
The Post Office credit card may not succeed in changing the market, but it might carve a niche of loyal followers.
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