Source: Independent Financial Comparison (one, two)
This is excellent.

1. Annual fees are making a comeback

Throughout the Eighties and early Nineties, annual fees were the norm, as most credit-card issuers levied them. However, aggressive competition from the likes of the ‘American Eagles’ (Advanta, Capital One, MBNA, etc.) saw annual fees all-but-abandoned in the mid to late Nineties. Sadly, as lenders attempt to cope with rising bad debts and an enforced reduction in late-payment fees, annual fees are now making a comeback. More than a dozen cards now levy annual fees, and firms such as Lloyds TSB and MBNA are selectively introducing annual fees, targetting unprofitable customers and dormant accounts. So, keep a close eye on your monthly statements, in case your card issuer decides to spring an annual fee on you.

2. Balance-transfer fees are rising

If you’re paying interest on your credit-card debts, try transferring them to one of the dozens of cards which offer introductory interest-free periods lasting from five to twelve months. These 0% balance transfers cost card issuers a lot of money to subsidise. So, lenders have responded by bringing in transfer fees to offset the cost of providing interest-free credit. If you opt for a 0% balance transfer lasting six months or more, then expect to pay a fee of, say, 2% to 3% of the value of each transfer.

3. Card protection plans aren’t worth it

Last year, I acquired a new credit-card and, sure enough, the annoying sales calls began. One product on offer was a card protection plan from the likes of CPP and Sentinel. This cost £29 a year and provided protection against losses due to fraud and theft. Naturally, I turned down this kind offer, explaining that the true cost this product should be about £3 a year. Also, the Consumer Credit Act limits my liability against fraud to just £50 — and card issuers usually waive this sum.

4. Cash interest rates are extortionate

If you use a credit card to withdraw cash from a cash machine or over the counter, watch out for two things: cash-withdrawal fees (see point 5) and sky-high rates of interest. Although a typical credit card will charge an interest rate of around 16% a year on purchases, interest rates for cash withdrawals are far higher — anything from 20% to 30% a year. Even worse, you lose your normal interest-free period of between 45 and 56 days). Ouch!

5. Cash-withdrawal fees are steep

As well as attracting higher interest rates and forfeiting your interest-free period, making cash withdrawals on credit cards racks up additional fees. Until last year, this fee was, say, 2.5% of the amount withdrawn, with a minimum charge of £2.50. However, cash-withdrawal fees are on the rise, with many issuers now charging 3% (minimum £3). So, get the message: credit cards and cash don’t mix. Stick to making fee-free, interest-free cash withdrawals with your debit card.

6. Credit-card cheques are a rip-off

Unsolicited credit-card cheques are of my pet hates. Indeed, I’ve closed more than one account because a card issuer kept sending them to me. The big problem with credit-card cheques is that, nine times out of ten, they are treated in a similar fashion to cash withdrawals. Thus, although they offer ‘convenience and flexibility’, these benefits come at a high price. (While most credit-card cheques charge high rates of interest plus handling fees, look out for low-cost balance-transfer cheques which charge low rates of interest and could save you money.)

7. Foreign usage fees gobble up your spending money

When you spend on a credit card abroad, buy from an overseas website, or pay for goods in currencies other than sterling, all but a few credit cards charge you an extra ‘foreign currency conversion’ fee. Typically, this adds 2.75% to the cost of overseas purchases, or £5.50 for every £200 spent. To avoid paying this unnecessary fee, be sure to take the right plastic abroad. The following cards don’t levy this charge, both in EU states and worldwide:

Post Office : Classic MasterCard and Platinum MasterCard
Nationwide BS : Classic Visa, Comic Relief Visa and Gold Visa
Morgan Stanley : i24 MasterCard (this ultra-premium card charges an annual fee of £275)

In addition, watch out for fees for making withdrawals from cash machines abroad, which are broadly similar to those charged here in the UK.

8. Interest rates are too high

At present, the Bank of England’s base rate is 5.25% a year, yet a typical credit card charges more than 16% APR on purchases, and even more on cash withdrawals. In my view, this margin (more than ten percentage points over the base rate) is too high. Of course, by keeping interest rates high, banks makes higher profits from our addiction to spending on credit, so don’t expect rate cuts any time soon.

9. Late-payment charges

Until last year, most credit-card issuers would levy a penalty charge of between £20 and £25 if you missed a payment, failed to pay on time, or exceeded your credit limit. However, following enforcement action from the Office of Fair Trading (OFT), no card issuer now charges more than £12 per offence. Nevertheless, as an ex-banker, I know for certain that the true cost of dealing with these problems is measured in pence, not pounds, so I firmly believe that the card issuers got off lightly. Then again, recovering unfair bank and credit-card fines is a doddle, if you read our ultimate guide to reclaiming your money!

10. Minimum monthly repayments mean misery

Minimum monthly repayments (MMRs) are the work of the Devil. Until the mid-Nineties, credit-card issuers would demand an MMR of at least a tenth (10%) of an outstanding balance. However, fierce competition for customers has whittled this away such that most card issuers now require an MMR of 3%, 2.5%, even a measly 2%. Of course, the lower the MMR, the longer it takes to repay your debt. Indeed, as MMRs mainly consist of interest and other charges, they hardly chip away at your debt at all.

For instance, let’s say that you owe £2,500 on a credit card which charges an interest rate of 1.5% a month (19.56% APR) and has a minimum monthly repayment of 2.5% (minimum £5). If you pay only the bare minimum, you will repay this debt in 26 years and one month. Over the decades, you cough up a total of £6,058, which is your original debt of £2,500 plus interest of £3,558. Therefore, avoid MMRs like the proverbial plague!

11. Negative payment hierarchies bump up the cost

Be very wary of transferring a balance to a 0% credit card and then taking this card shopping. Unless your 0% deal also extends to purchases, you will pay standard rates of interest on your spending. This is because almost all credit-card issuers apply what’s known as a ‘negative payment hierarchy’. In other words, your monthly repayments first go towards repaying your cheapest debt, such as a 0% balance transfer, leaving your most expensive debt to accrue interest. Nationwide BS is the only major credit-card issuer not to use this sly trick.

12. Payment protection insurance is hugely overpriced

As I warned in Millions Conned By Card Cover, credit-card issuers charge extortionate premiums for payment protection insurance (PPI). Also known as credit card repayment protection (CCRP), this optional insurance meets your monthly repayments if you are unable to work due to an accident, sickness or unemployment. This protection is up to ten times as expensive as it should be, so don’t buy it — unless you like being mugged, that is!

13. Credit cards encourage you to spend more

When spending on credit cards, we often splash out more than we initially intend to. Indeed, Keith Tondeur of money education charity Credit Action warned that paying with plastic encourages us to spend around a third (34%) more. Tondeur’s report, Escape from Debt, was originally published in 1993, and I imagine that this overspend will be much worse these days. Thus, if you find it hard to resist impulse purchases, then steer clear of credit cards.

14. Twelve different ways to calculate interest

According to consumer group Which?, the UK’s top twenty credit-card issuers charge interest in twelve different ways. This makes a mockery of Annual Percentage Rates (APRs), because a card with a ‘higher’ APR can be cheaper than one with a ‘lower’ APR, depending on how each calculates interest. Thus, Which? recently made a super-complaint to the Office of Fair Trading, asking it to introduce a standardised formula for calculating credit-card interest.