Get your Christmas cards right

Store cards are still charging average interest rates of up to 24.4 per cent despite recent action by watchdogs, a study conducted by MoneyExpert.com shows.

And a comparison with rates last Christmas shows four stores have increased the cost of borrowing on their store cards. Burton, Dorothy Perkins, Argos and Marks and Spencer Money have increased their APRs by an average of 2.7%. Marks & Spencer Money has hiked prices the most, from 18.9% by direct debit in December ’06 to 23.9% in October 2007.

The independent financial comparison website says store cards are prohibitively expensive, with an average APR of 24.4%. The company is warning Christmas shoppers with tight budgets to avoid the lure of the store card as the discounts and gimmicks on offer do not make up for the massively expensive rate of borrowing.

According to MoneyExpert.com, a shopper putting an average £1,270 on a new card this festive season could unnecessarily incur annual interest of up to £234 more on a store card than if they chose a typical credit card.

The MoneyExpert.com study showed the average APR on store card purchases repaid by direct debit is 24.1% - or 24.4% if you make repayments by other means, such as by cheque.

By contrast MoneyExpert.com’s analysis of the credit card market has found that the average introductory rate on purchases using a credit card is only 5.9% - over 18% cheaper than the average store card.

According to MoneyExpert.com even standard credit card rates are cheaper than store cards, meaning Christmas shoppers are better off using an old credit card even if their introductory deal has expired. The average standard credit card APR on purchases currently stands at 16.5% - 7.74% lower than the average store card.

Sean Gardner, Chief Executive of MoneyExpert.com, said: “With store cards the advice is simple. Don’t use them. Avoid the gimmicks, don’t be lured in. Invariably people forget about spending on their plastic, or they use credit precisely because they know they won’t be able to repay the debt immediately.

“Under those circumstances there is no more expensive form of borrowing than a store card.

“The discounts can be attractive, and some store cards offer zero per cent deals if you spend a lot of money in-store. So if you’re adamant you need a store card, ensure you make the most of it by keeping up to speed on all the incentives on offer.

“But our analysis shows there’s little need to opt for one of these cards as you’ll always be better off if you opt for a credit card with a long 0% introductory rate on purchases.”

The MoneyExpert.com study also highlights the plus points in the store card market. The analysis shows shoppers could pick up a few bargains if they know the stores they want to target this Christmas. The Homebase Spend and Save card for example offers six months interest free credit on purchases if you spend £195 or more. Consumers will have to be careful to make repayments quickly however as the APR jumps to a hefty 27.9% after this.

The retailer Oasis offers exclusive shopping events, while House of Fraser offers £15 in vouchers for every £500 spent in the store. Both however charge high rates of interest on borrowing – 24.9% and 27.5% respectively.

These rates seem excessive when compared to the best value credit cards. The Halifax One Card offers 0% for 12 months on purchases and 0% for balance transfers for 12 months as well as a standard APR of 15.9% - as does the HSBC MasterCard.