Competition Commission outsmarted by sneaky store cards

Despite new rules to protect the UK's 11 million store card-holders, analysis by money website Fool.co.uk reveals that stores are still ripping off customers, with some charging almost 50% more interest on their store cards than credit cards.

On 1 May last year, the Competition Commission brought in new regulations to govern the administration of store cards that charge annual percentage rates (APRs) of 25% or more.

Fool.co.uk has found that clever store card providers have beaten the Competition Commission at their own game by flying just below the 25% threshold. Some have even managed to increase their interest by as much as 7%, and yet remain under the stipulated 25%.

Since the new rules came into force there has been an average drop in store card interest rates of 0.7% from around 25% in May 2007 to an average of 24.3% APR today.

The three main offenders, who have increased their interest rates since May 2007 and hover under 25% are:

Ikea up 7% to 19.9%
Marks and Spencer up 4% to 23.9%
Debenhams up 1% to 19.9%

The four stores which have dropped their rates since May 2007, and now fall below 25% are:

Oasis down 5% to 24.0%
Jaeger down 2.1% to 24.9%
Russell and Bromley down 6% to 23.9%
Laura Ashley down 10% to 19.9%

The four worst store cards, which remain unchanged since May 2007and have to comply with the Competition Commission's recommendations, all have an extortionate rate of 29.9%:

Burton
Dorothy Perkins
Miss Selfridge
Warehouse

Ed Bowsher, Savings Expert at Fool.co.uk comments: "Store cards are the devil in disguise. They initially offer attractive benefits and bonuses, which can be hard to resist - but there is a downside to grabbing these discounts and deals.

"Store card-holders should be aware of the high interest rates which come hand in hand with introductory offers - and should remember that these cards are designed to make you spend, rather than help you save money.

"If you've spent on a store card and are still paying off the balance, that debt could be costing you far more than it needs to. However, by making use of a 0% balance transfer credit card, you could avoid paying any interest for up to 15 months."

Fool.co.uk's top tips for sensible store card shopping:

Don't be seduced into spending more by special or introductory offers - remember the card is designed to cost, not save you money.

If you do spend on a store card, pay off your balance in full every month within the interest-free period. This is usually around 51 to 59 days.

If you're paying interest on an old store card debt, transfer your balance to a 0% balance transfer card. Alternatively, getting a cheap life of balance transfer card would allow you to pay a fixed low rate of interest until the full debt is paid off.

Finally, avoid buying massively over priced Payment Protection Insurance.