Comparing credit cards has become increasingly important as the average interest rate has risen to a 12 year high of 18.8 per cent, according to Moneyfacts.co.uk.
The financial website's analysis of the credit card market has found that, despite a base rate which has now been static at 0.5 per cent for almost a year, a lack of competition has meant that average credit card interest rates have risen.
In February 2008, when the base rate was at 5.50 per cent, the average credit card rate was 16.8 per cent. Since then, the base rate has fallen dramatically while credit card lending has become more expensive.
February 2006 saw average rates of 14.8 per cent, but Moneyfacts argues that interest rates were lower then because competition in the credit card market was higher, whilst the financial crisis of the last several years has seen providers pull out of the market.
Indeed, the base rate seems to have relatively little effect on credit card rates, unlike mortgage and savings rates which are more likely to reflect the base rate. In February 1998 for example, credit card rates were at 21.1 per cent, little more than they are now considering the base rate was more than 14 times higher than it is now, at 7.25 per cent.
Michelle Slade, spokesperson for Moneyfacts.co.uk, explained that ongoing unemployment is making lenders nervous about the increased risk of customers defaulting on their credit card payments, so this increased risk is being passed onto consumers.
To put the rising cost of credit cards in perspective, Moneyfacts has calculated that a customer with £5,000 of credit card debt, paying the minimum each month, will now pay an additional £2,289 over the life of the debt compared to February 2006.
"Other charges such as balance transfer, cash withdrawal and foreign transfer fees also continue to go up, leaving customers paying more across the board," Ms Slade added.
"Card companies are reassessing their existing customer base, resulting in numerous customers seeing a rise in their rate."
Consequently, customers who would previously have switched to another provider are finding this is not as easy now that there is not as much competition in the market.
"Competitive deals for balance transfers and introductory purchases remain on offer, but card providers are being extremely selective over exactly who they accept for these deals," she said.
© Fair Investment Company Ltd