Play your cards right to save £2bn

CREDIT card companies are making huge profits by charging consumers high interest rates and failing to pass on cuts in the Bank of England base rate. Research by the Consumers' Association shows cardholders could save £2bn a year by switching their outstanding balances to cards offering more competitive rates.

Britons have more than £32bn of credit card debt and are being charged interest at an average rate of 16%. The association says that by switching to cards charging just 10% they could save up to £5.3m a day.

Two-thirds of credit cards in circulation in the UK are issued by the big four banks - HSBC, Lloyds TSB, Barclays and Royal Bank of Scotland/NatWest. HSBC charges interest at 18.9%, Lloyds 17.9% and NatWest at 17.4%. Barclaycard charges between 9.99% and 24.9%, depending on the holder's credit 'score', with an average of around 14.9%.

But smaller companies, such as the Intelligent Finance Classic Visa, offer as little as 8.9% while Virgin Money MasterCard offers 10.9% and Halifax Classic Flat Rate 10.8%. Even greater savings can be made if cardholders take advantage of lower introductory rates offered by some companies on balance transfers, and keep moving their balances when these offers ended.

The association said most customers who transferred to another card provider found it easy to do, with nine out of ten saying they did not encounter any problems.

The research, published in its association's magazine Which?, found increasing competition in the market had helped cut interest rates. Editor Helen Parker said: 'Cardholders are pouring money down the drain by using costly credit cards. People shouldn't be afraid to switch. Our research shows that almost everyone who did so had no problems at all. And by switching to one of our 'best buy' cards they could save hundreds of pounds a year.'

A spokesman for Barclaycard, with 8.4m customers the largest single credit card provider in the UK, said: 'Most people would not get a card with a rate of 10%. Companies are particular about who they take on and cannot offer higher risk customers such low rates.'

The Credit Card Research Group, funded by the major card issuers, estimates 54m credit cards are held in the UK, including affinity cards issued by charities and football clubs. Director Steve Round said: 'Even where the interest rate is 14%, 15% or 16%, more than 60% of balances are repaid every month. If you are paying off the debt, the interest rate makes no difference.'

Last month, the Consumers' Association accused the big banks of ripping off seven out of ten customers in a £500m a year scam. It urged people to have the courage to switch banks to avoid bad deals on current and deposit accounts, and high charges on mortgages, loans and overdrafts.