10 UK travel credit cards hike their interest rates sharply

I was updating the credit card database page on Head for Points yesterday and noticed some shocking changes to the interest rates charged on many popular travel credit cards.

Since the EU capped credit card interchange fees at 0.3% in December, it has become hugely difficult to make money out of average spenders.  Whilst travel credit card holders are wealthier than average, this means that very few of them pay interest.

The upside, as I was told at the credit card conference I attended earlier in the year, is that when they do pay interest, they are paying it on a larger than average balance.

Virgin White

Here are the changes I noticed yesterday on a range of free cards.  The rates quoted are for new applicants and may not necessarily have been imposed on existing cardholders:

American Airlines American Express and Visa (MBNA) – up 5% to 22.9%

Emirates Skywards American Express and Visa (MBNA) – up 5% to 22.9%

Etihad Guest American Express and Visa (MBNA) – up 4% to 22.9%

HSBC Premier MasterCard (HSBC) – up 7% to 18.9%

Lufthansa Miles & More American Express and Visa – up 6% to 22.9%

United MileagePlus American Express and Visa – up 4% to 22.9%

Virgin Atlantic White American Express and Visa (MBNA) – up 5% to 22.9%

Where these cards have a paid version (Emirates, Virgin) those have also gone up by just over 5%.

Marriott Rewards has also increased the rate on its MasterCard but that card is not currently available to new applicants.

In the short term, as card issuers are tied into contracts with the airlines, ramping up interest rates is the only weapon they have.  Changes in annual fees or earning rates would require contract renegotiation – but those will be coming too over the next couple of years as deals are renewed.

(Want to earn more miles and points from credit cards?  Click here to visit our dedicated airline and hotel travel credit cards page or use the ‘Credit Cards Update’ link in the menu bar at the top of the page.)

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  1. Great news as far as I (and I’d have hoped all HfP readers) am concerned! Appreciate this will only be until contracts are renegotiated, but long may it continue!

    • Indeed, I’ve got no issue with higher rates as its always paid off before the charges kick in.

      Rob, do you see Virgin boosting their card sign up bonuses in the next couple of months at all ?

      • MBNA has not run any bonuses on any card in 2016 – new era economics.

        • wetboy1uk says:

          Alan – I wouldn’t exactly say great news. What about those who are not in the same position as you. Fortunately I am not one of them but your comment is very patronising and another example of the people on here who seem not to need points, miles etc to travel but screw the system. I bet you are one of the people who over buy whenever there is a Tesco points offer. I hope they start limiting such offers to one per person.

          • And you sound like a bitter, jealous fool…

          • The first rule of this game is that if you can’t pay off the balance each month you really shouldn’t be playing. Much better cards out there if you are in that situation

            • Exactly. Moneyfacts shows numerous credit cards with standard interest rates of 7% – 8%. You won’t be getting any points but the interest savings will more than outweigh that. Travel cards were already a shockingly bad deal if you were paying interest even at 16% – 18%.

          • Genghis says:

            And what’s wrong with buying more than one item at Tesco for the points?

            • Tesco has strict bulk buying rules. When they did a promo on a Dan Brown book, they decided that two copies counted as bulk buying on the basis that you would only personally need one. Printer inks obviously have more flexibility as they are consumables.

          • is there such a thing as over-buying?

            I doubt it

            just a misunderstanding, lack of knowledge etc

            (by others)

          • Sorry, wetboy1uk but I don’t agree at all that my comment is patronising. As has often been said on here, those taking out credit cards for points and miles should ALWAYS pay off the balance every month, one shouldn’t be paying any interest on a card, let alone these higher rates. By those ‘not in the same position’ I presume you mean those with less money who aren’t able to pay off their bill monthly? Well I’m sorry but in that case they shouldn’t be taking out points and miles credit cards and running up debts on it! More sensible would be to either not spend outwith one’s means or to obtain a much cheaper personal loan rather than using credit card for debt – adults need to take responsibility for their own finances, although I take the point others have made re trying to improve financial education in schools. With regards ‘screwing the system’ I can’t see any issue with people taking up offers made by Tesco (who have bulk buying rules in force), however have less sympathy for those dropping sectors from ex-EU tickets, I think it’s better to play the game and complete the itinerary.

            • Nope, don’t agree about the ex EU tickets at all. Can’t imagine any logical reason to force someone to fly to somewhere they do not want to except to screw them over for more profit.

  2. Genghis says:

    Interesting observation. Card issuers need to make their money some how and as usual in these situations, the less well off suffer. Probably not what the EU intended…

    • Exactly. In my opinion there should be a regulation that limits any credit card interest rate to say, around 10 points above the base rate on balances above 500 pounds. If that means the end of earning points on credit cards then so be it.

      • You can’t regulate everything on credit cards, they’ll end up going out of business! They chose to regulate inter-change fees rather than other areas like interest rates, which will now have consequences on the other fees that will hit the poorest hardest. The fairest balance was the status quo, with no market intervention, where we had a broad selection of cards to choose from that met the needs of most.

        • Yes you can regulate more. The interchange fees were imposed because there are only 2.2 players in the world for credit cards – Mastercard, VISA, and Amex. It’s a difficult one for competition because the competitive world benefits from only ONE type of payment method, rather than say, 100 different payment methods. That’s the interchange fees. The interest rates are something else. But when base rates in the UK are 0.5% there is absolutely no justification for credit card rates – or any other borrowing for that matter – to be more than 10 points above the base rate. Full stop. If that means annual fees, and higher fees for cards with benefits, then fine. I’m a capitalist through and through but the credit card market in the UK is incredibly flawed and could definitely do with more regulation. The fairest balance was not the former status quo. And the status quo is not the fairest balance either.

          • Of course there is good justification for credit card rates being more than 10 points above base.

            You appear to have forgotten about default.

            • & other costs

            • Not forgotten at all.

              – Default costs are easily worked into 10 points above capital cost.
              – Other costs are worked into a card fee, which is where things are going anyway.
              – Lending criteria is ramped up.
              – But – as I said in my initial post, only for credit limits above £500. So, we have the Free Wild West of Capitalism for the first £500, where everybody has access to some sort of credit, and then a bit of sensible regulation above £500.

            • I guess we’ll see

              thanks for reply

          • Agree with point about interest rates being capped. High rates can make those less well off with credit card debt problems, go on a downward spiral. However, regulation on all credit card company income streams will move us towards standardisation rather than diversication. I like being able to select a card that offers me what I want.

            • But what do you mean by offer you what you want? There are three bits to credit cards. Fixed fees to the cardholder (annual payment of 500 pounds for lounge access and miles on purchases etc) variable fees (for borrowing capital) and fees born from merchants on spending. Regulation of the latter two does not inhibit competition. It encourages competition, on a level playing field.

  3. Tilly71 says:

    Discovered this week that if you buy foreign currency from tesco bank using the tesco MC you do not get charged cash advance fees and clubcard points on the amount your purchase.

    • Genghis says:

      Do they do Sterling travellers cheques?

      • Genghis says:

        Just had a look myself and it terms out they do with a 1.25% charge. What’s the cc points earning rate Tilly71?

        • Tilly71 says:

          Normal purchase rate @ 1 cc point per £8 I was advised on the phone.

          • Thanks. I thought there might be a decent risk free opportunity. Oh well.

            • Tilly71 says:

              I see where you were going with that, probably not worth it but good if you needed foreign currency anyway. When I price comparisoned Tesco they came out third cheapest with penny’s in the difference and no.2 cheapest Marks requiring the use of their credit card to get that rate.

  4. If contacts are to be renegotiated and terms changed to the detriment of customers, is there a danger that churning may well result in getting an inferior product. Are there cards that we should now not churn? How long is churning safe for?

  5. John Gallagher says:

    I assume the % increases are infact %pts rather than just %s?

  6. I really don’t understand why they made this ruling I’m such a way that consumers are now having to pay more. Its typical regulation trying to do one thing to bring the cost of goods down, yet just ends up costing consumers more and losing perks.

    • RIccati says:

      Yes, it is funny how regulation of costs makes the credit card borrowing rates to go into high 20-30%. This is while the Bank of England rate is not moving from near zero.

      In the U.S. some states have usury laws that set limits on the maximum rate of interest a lender may charge a borrower, but credit card debt is excluded.

      So, the regulator (if they have someone familiar with the international law) should be well aware about the direction the things will go (interest rate up) since it’s a practice across jurisdictions of not capping the credit card interest rates.

    • alan jones says:

      EU brought the interchange cap in, saying that it would reduce prices for consumers?

      Well has it?

      Have retailers dropped prices by the same % in the drop in credit card processing costs?
      Or have they increased profit margin by this %

      If I remember correctly interchange cap was tabled by Netherlands MSP’s (Netherlands has the lowest credit card usage in Western Europe)

    • The costs are being apportioned to those who incur them. Why should someone who pays cash in a shop subsidise your credit card use?

      • In fairness, there are costs associated with handling cash which depending on the business, may outweigh the cost and convenience of being able to accept CC payments.

      • Aeronaut says:

        Because those who can’t afford to play this game should be subsidising those who can.

        (At least, that appears to be the argument from some!)

  7. Slightly off topic but credit card related. Re the Hilton honors Visa card, how long after the £750 target is met is the free night voucher issued ? Is it generated after the next statement date ?

    • Normally posts to account a couple days after spend hit.

    • Has anyone applied for the HH Visa, also holding an IHG card, since new applications ceased?

      • The Urbanite says:

        I did last week, got a letter to say only new Barclaycard customers were eligible to apply for the HH Visa.

        • It wouldn’t surprise me to see Hilton switching then, because I doubt they are happy with a few million Barclaycard customers being excluded from getting their product.

    • Wally1976 says:

      I completed my spend on Wednesday evening and the free night voucher came through yesterday :-)

  8. O/T, sorry to be off topic.
    Rob/guys with the demise of AmEx travel money, where is the best place to buy currency from and can this service be used to achieve a spend on an AmEx card without it being treated as a cash advance, as I’ll need some currency soon but I’m unsure the best place to buy it from, thank you Adrian

    • If you ordered a Curve card, I would use that at an ATM abroad. 1% fee but the FX rate is spot, virtually, and if you recharge to a card paying more than 1% in rewards then you’re getting your money for less than spot.

      • Simon Schus says:

        Am I right in thinking that this advice is with a caveat?

        Many of the US ATMs impose a fee for withdrawals on cards not in their network (e.g. you’d get charged a fee for using a HSBC card in a Bank of America ATM in the US, but not a HSBC card in a HSBC ATM in the US). I doubt that Curve gets around that? I don’t think the Halifax Clarity card avoided the fee.

        The is also the other caveat of the ATM charging you in local currency rather than doing the conversion for you (I got hit by that in Greece by pressing the button too quickly without reading the instruction).

        Or do the rewards counteract that from the cost being outweighed by the benefit perspective?

        • Genghis says:

          I thought it’s best to be charged in local currency?

        • The fee is something like $1.75 in my experience, so around £1.30. On a typical withdrawal of £150 equivalent it is less than 1%. Given that you actually make a profit on the Curve fee in most cases, I still prefer this. It also saves the bother of getting currency before you go.

          • All very ‘let’s see it’

            They’re not stupid.

            Probably first ones will do well.

  9. The ruling makes pretty good sense, the Visa/MasterCard System doesn’t provide sufficient competition to keep card rates as low as they should be.

    Visa/MasterCard have market share positions that are in reality a license to print money at the expense of the customer.

    For example in 2015 Visa had a net income of $1.5bn on $3.3bn revenue.

    That’s extraordinary for such a simple company. I’d rather make my money that way than designing and manufacturing jet engines for example – compare to Rolls Royce accounts of £0.8bn net income on £13bn revenue.

    It’s about time credit cards were restrained, from balance transfers on unsecured debt to incentivising customers using them to get “free” points and rewards, it’s all just a big distraction to encourage excessive usage.

    If alcohol companies were giving avios on per unit of alcohol sold people would be up in arms, credit card debt can be as dangerous to a persons finances as alcohol can to their health.

    • Well you get Heathrow rewards points on duty free, or Avios in the BA High Life shop!

    • RIccati says:

      I say, it is nether the place or the role of the government to care about the profits and business model of Visa/Mastercard.

      The role of the government is to create and incentivise the environment where competition arises (from small and big players such as Apple Pay and alike). If you want to cut costs — let companies to have direct debit like access to bank accounts and be done with Visa/Mastercard.

      • Genghis says:

        I think the gov’t needs to do more to educate adults on how to handle finances. MSE does a great job but and kids are being taught about finances at school. People need to realise that they can’t live beyond their means and rack up expensive credit card debts

        • RIccati says:

          But this has nothing to do with interchange cap regulation.

          In fact, there is a lot of vested interest — the government/regulators don’t like complexity and pretty much everyone preferring people to use debit cards.

          • Genghis says:

            But it has got a lot to do with the less well off paying interest on credit card balances

      • Apple Pay still feeds through the Visa / MC interchange platforms though. What we need is for Apple and Google to create their own integrated payment platforms – it is totally feasible given that these companies throw off huge amounts of cash which could be used as ‘float’.

        • Yes, and you can see with PayPal (who are akin to worldpay in the chain and still use Visa / MC interchange) how
          1. The access to card processing can be made widely available with no subscription
          2. The fees associated with processing can be realistic.

          It will be interesting to see if PayPal processing fees now change with the cap on Visa/MasterCard.

  10. looking for clarification on upgrading from amex gold to plat anex that you still get 20k rewards for spending 1k within 3 months , is it possible to upgrade the card then spend the 1k straight away then they say it can take 60 days to add the points this would leave just over 2 months of paying the plat amex fee then i could cancel my card all together then re apply within 6 months is this correct ? And also im i allegible for the points if i upgrade if ive only had my gold card 3 months so far ?

    • Genghis says:

      You should be eligible. Give it a go. After spending the £1k, points post within a few days so you should be able to cancel then for a quick 20k MR points.

      • Can u cancel as soon as you reach the the 1k spend ? or do you wait till they deposit them in your rewards acc , also how long do they take in average to deposit the points ?

        • Genghis says:

          Wait until deposited in your rewards account. Takes a few days after hit spend. IIRC Tilly71 had same experience. Set up your transfer out details while hitting spend. Then you can do a transfer out and then cancel

    • yep the points should hit very soon after the relevant transaction (i.e. at the same time as the points from the transaction itself hit). i just benefited from this myself in a similar manner.
      fine to cancel after transferring the points away (though probably best to wait until they reach their destination to be safe)

  11. Johnnycl says:

    So do we know when current contracts with airlines/hotels are due for renegotiation? If we have an idea of timings it could be worth taking out a card on the current earnings scheme in case they offer locked-in benefits on a grandfathered basis.

    It will be interesting to see what the first mover does and see the precedent be set.

  12. I’m surprised to see that the fee cards of Emirates and Virgin have also had an interest rate hike, you would’ve thought that they may get away with the same interest rate but no. I’ll have to wait until the contracts come up for renewal to see if benefits change, I’d like status with the fee Emirates card but that’s probably pushing it!

  13. I spotted this in Thursday’s Evening Standard:

    “Also buried deep in the Tesco figures: A Brussels clampdown on prices charged by credit card companies to their corporate customers is costing Tesco Bank dear in commissions. Tesco Bank saw it’s operating profits fall 14% to £162 million largely as a result of the impact on new rules imposed in December had on MasterCard.That’s £26 million in pure profit going from Tesco Bank to businesses taking card payments, and as Tesco says, that’s only the start of it; the full impact won’t be felt until the next financial year.”

    • Given that the rules didn’t kick in until December that is quite a hit.

    • Genghis says:

      So Tesco Bank’s OP has fallen due to the interchange cap. How has the rest of the Group been affected? Surely OP has increased a fair bit.