Saving for a rainy day is costing consumers unnecessary interest payments on their credit cards when they could use their savings to clear the balance and still stay in the black, according to a study by Fool.co.uk.
Fool.co.uk estimates that consumers carry over £1,137 a month on their credit cards and despite stashing the cash for emergencies, they are paying hefty interest fees to card companies unnecessarily.
The study found that the average Brit has £869 sitting in their current accounts with a 'rainy day' fund of £2,526 yet it seems many people are prepared to pay interest on outstanding balances even though they have the means to clear their credit-card debts from existing savings.
One in six claim to regularly carry over £400 to £500 of debt on their credit cards yet have £3,000 stashed away for emergencies. But with the average Brit owning at least two credit cards and with one out of five people claiming to leave as much as £3,000 of their credit card balance unpaid each month, the interest soon adds up.
David Kuo, Head of Personal Finance at Fool.co.uk, comments on the findings: "We are often told to put aside money for a rainy day because having a ready source of funds for emergencies is a sensible thing to do – and it is.
"But it makes little sense to have a stash of money earning interest at 6 per cent a year when a pile of debt is burning a hole in our finances at 15 per cent annually. Saving money before you have paid off your debts is like trying to fill a bath without putting the plug in first. It’s a pointless exercise that results in a waste of water, an empty bath and hefty water bills.”
Fool.co.uk's figures have shown that those aged between 34 and 41 are the most likely to have savings and credit card debts simultaneously with around £1,000 of credit card debts, but £750 in savings.
For those who are cottoning on to the interest rate racket, Abbey has just announced it will be launching a 0 per cent interest rate for 13 months as well as offering five per cent cash back on spending at many supermarkets and a 15.9 per cent APR on purchases after the introductory period ends.
Abbey's offer is just one of a number of initiatives being levied at customers by card companies who are attempting to win over consumers with spotless credit histories after such a turbulent period in the UK money markets. Compare credit cards
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