Rate tarts losing ability to cherry pick

Released on = June 22, 2005, 8:11 am

Press Release Author = Richard Green

Industry = Financial

Press Release Summary = Credit card introductory period offers due to be phased out
following massive losses by providers.

Press Release Body = A “rate tart” is someone who switches from one zero per cent
introductory credit card deal to another to avoid paying interest; however they may
be set to become something of the past. Recently a number of the major credit card
companies, including Egg, Barclays, the Royal Bank of Scotland and MBNA have
introduced transfer charges for people who want to shift their outstanding credit
card balances to a new card to take advantage of a zero per cent introductory rate.

Rate tarts will wait until the interest free period is about to expire on their
current credit card, and then check through lists of providers to find another card
they can switch to that has another 0% interest rate introductory period. The
growth of financial comparison sites like uSwitch, moneynet (
http://www.moneynet.co.uk/ ) and moneyfacts (http://www.moneyfacts.co.uk/ ) has made
this money saving behaviour easy to achieve.

The providers have effectively become victims of their own success. As more and
more card companies began offering interest-free balance transfers, the card
providers found that they had to offer longer and longer interest-free periods to
win customers, which in turn meant less profit.

Analysts have recently estimated that rate tarts are currently costing lenders £1
billion a year.

Financial director Stuart Glendenning said, "Charging a fee on balance transfers is
one way of recouping some losses, given it is impossible to make money lending at 0
per cent if the customer conducts no further transactions on the card.”

Professor Merlin Stone of Bristol Business School, comments: "Economically, some
providers cannot sustain their current offers of zero per cent interest which means
they may have to remove them or start introducing new charges to help reduce their
losses.”

This is exactly what appears to be happening, Professor Stone stated, "Research
shows that in 2003, none of the cards offering zero per cent APR interest on balance
transfers applied charges for transferring balances compared to around 11 per cent
that do today."

Perhaps in an effort to justify the reduction in 0% introductory period on credit
cards, Patrick Muir, marketing director at Morgan Stanley Consumer Banking
(http://www.morganstanleycard.co.uk/), said: "Our research suggests that cardholders
are wising up to short-term deals, as the majority of those currently switching or
planning to switch are not moving from one short-term offer to another.”

Only eight per cent of people are looking to change their credit card in the coming
months, said investment bank Morgan Stanley, however Stuart Glendenning advises,
"Whilst not all have gone down the fee route yet, my advice is simple: transfer your
balance for free while you still can."

Web Site = http://www.moneynet.co.uk

Contact Details = E-mail: INFO@MONEYNET.CO.UK
Telephone: 020 8313 9030
Fax: 020 8464 1971
Website: http://www.moneynet.co.uk
Address: Moneynet
Sussex House
8-10 Homesdale Road
Bromley
Kent
BR2 9LZ