Cardholders braced for rate rise

Millions of credit card holders face the prospect of a rise in their monthly interest payments after Barclays Bank's announcement that it is to lift its rates to 22.9 per cent APR.

The increase means rates go up 1 percentage point from March and Barclaycard's 6 million users will see an added £7.80 a year on an outstanding balance of £1,000. The move follows several bank base rate rises in the past six months, up from 5.25 to 6.75 per cent.

Other banks and building societies said yesterday that they were watching developments carefully. Several hinted that they were likely to follow suit in the next few weeks. But Lloyds Bank raised the prospect of a minor price war, saying it aimed to keep its rates pegged at 21 per cent until forced to move by a further base rate rise.

Bob Potts, Barclaycard's chief executive, said the increase had been forced by the three base rate rises in the past few months.

But he also blamed other factors: "Our costs continue to be affected by the fact that almost 50 per cent of customers now settle their bills in full at the end of the month to gain the advantage of eight weeks' interest free credit."

A National Westminster spokesman said: "We are watching developments and will be making an announcement before the weekend." It is believed NatWest's 3 million cardholders, currently paying 22.4 per cent APR, may see their rate match Barclaycard's new one.

Midland Bank, which has 3.2 million cardholders, said: "We are not considering a rise right now. If base rates do go up again it would be difficult not to follow." Building societies, including Alliance & Leicester, Leeds and Halifax said they also had no immediate plans for increases.