Card loyalty doesn't pay

By THIS IS MONEY
Updated: 05:58 EST, 30 August 2005

SAINSBURY'S Bank and Virgin have joined the long line of credit card providers to change or remove incentives designed to attract new customers.

Sainsbury's was offering cashback at 0.25% unlimited on purchases, or Nectar points. The cards that offered these incentives are no longer available to new customers. Instead, they will be sent money-off vouchers. Balance transfers will be subject to interest at 5.9% while interest on purchases will be 0% for 10 months.

And Virgin Money has just announced that anyone hoping to take advantage of its 0% balance transfer deal will now have to pay a fee of 2% up to a maximum of £50 (£3 minimum).

Virgin said: 'Having held out longer than most, the move is now necessary if we are to continue to offer a 0% balance transfer option.' The Virgin Card will continue to offer 0% balance transfer rate for nine months with a typical rate of 15.9% for card purchases.

Over the past year there has been a growing trend for institutions to withdraw incentives they once used as a means to entice customers from their competitors.

Samantha Owens, head of research at financial data company Moneyfacts.co.uk says: 'It is now becoming increasingly difficult for customers to find a card that offers the kind of benefits that were commonplace a year ago.

'Not only have cashback deals been severely cut or, in a number of cases totally withdrawn, but incentives such as Nectar points and AirMiles are also less widely available. With 0% interest deals reportedly costing the card industry in excess of £1bn a year and many High Street banks reporting a steep increase in bad debts, it's not surprising to see providers taking measures to reduce their costs.' Last month Halifax and Bank of Scotland (both parts of the same company) scrapped the 0.25% cashback on their One Visa cards and in June, Mint scrapped the 0.5% cashback deal on its card.

Other companies to have cut back or scrapped their reward schemes include Egg, Accucard, Blue Amex and Easymoney.

Card companies are also acting to prevent canny customers from making the most of 0% deals by building up credit card debt and transferring it into savings accounts.

From 1 September, MBNA bank will no longer treat the transfer of credit card balances into a current account as a balance transfer, but as a money transfer instead. Unlike a balance transfer, this will mean borrowers will have to pay a 2% charge and interest will accrue on the debt as soon as it is transferred.

The move leaves Egg as one of the few remaining card companies that will allow customers to transfer the cash as a balance transfer. Alliance & Leicester also allow the practice, as do other branded MBNA cards, such as those provided by Virgin Money and Abbey, although it is unsure as to whether they will follow suit.