Interest rates on credit cards are set to hit 30 per cent after the Bank of England (BoE) increased the base rate to 2.25 per cent, nearing the highs of payday loans rates.

While rates can be as low as zero per cent for a fixed period, tens of thousands of consumers will now be hit with higher bills as firms start to increase interest in response to the Bank of England’s rate increase.

Consumers have been paying more since earlier this year. The Bank releases average credit card rate data, updated monthly. The latest shows that average rates have increased by around 4 per cent – double the increase we’ve seen in the base rate this year.

Between the start of June and September, average rates, including card fees, rose to an all-time high of 29.6 per cent, according to financial information company Moneyfacts, whose records go back to June 2006.

A combination of interest rate rises and the amounts of fees on new cards launched all contributed to this rise.

The new American Express Card comes with a yearly fee of £575, factored into the rate.

There have been other rises from Barclaycard, Tesco Bank, and HSBC, and introductory interest-free terms fell on both balance transfer cards – where you can move your debt to the card – and purchase cards, where you can’t start off in debt.

“It isn’t going to be very long before we see rates hit 30 per cent,” said Martyn James, a commentor on personal finance.

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The average interest-free balance transfer term on credit cards also fell to 612 days, from 613 days in June, although terms are up year-on-year while there are more options for borrowers to choose from, up from 68 offers to 73.

The zero per cent transfer periods have also come down slightly.

Alice Haine of Bestinvest said: “It’s likely that a number of banks will apply the latest base rate rise to their credit card products as lenders pass that cost onto their customers.

“How quickly this happens and how much of the interest rate rise, if any, will be applied to credit cards will differ between lenders, as some banks may prioritise attracting new customers in the run up to the high-spending festive season over increasing revenue.”

However, some believe the interest rate will not affect it too much.

Sarah Coles, personal finance analyst at Hargreaves Lansdown, added: “Not all cards will raise the rate along with the Bank of England, but some specifically state in their terms and conditions that when interest rates rise, they will hike their credit card rate too.

“Others don’t specifically state a link to the base rate, but they have the right to change rates whenever they see fit. You don’t have to accept a rate rise though, and can refuse and close the account – you’ll just have to pay the money you owe back at the existing rate.”

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