CREDIT

RATES

STRANGE but true - just as more low-cost credit cards are being launched, the Bank of Scotland has increased the interest rate on its credit card from 19.7% to 21.1%. Still, it remains cheaper than the Clydesdale's cards or the Royal Bank's ordinary credit cards or, in some cases, the TSB's. Customers of all these banks should lose no time in considering a switch to a better value credit card.

Those who shop at Tesco might be interested in the supermarket's new Visa card which is offering a competitive introductory APR of 12.9% which rises to 16.9% after six months. Additional benefits available with the card include free purchase protection and Clubcard points (one for every #2 spent on the card). Tesco's card has no annual fee.

A less attractive card has been launched by the UK's largest friendly society, the Liverpool Victoria. It has an APR of 18.9%, though a special balance transfer rate of 9.9% is available but only for three months. For every #10 spent on the card a bonus point is awarded (worth approximately 5p) which can be redeemed against insurance premiums on policies sold by Liverpool Victoria.

The rewards earned on both these cards tie you to the providers' products. Another new card launched earlier this year by the Alliance & Leicester also gives you rewards, but you have the freedom to use them as you want. Quite simply it is offering a ''money back'' credit card which earns its holders cash every time it is used to make a purchase. A cheque will be sent to customers at the end of each year - in time for the January sales.

As part of the launch, cardholders will reap extra cash rewards this year of 1% on purchases up to #3000 per annum and 2% on all purchases over #3000. But the normal rates will be 0.5% and 1%. So in a normal year anyone who spent #13,000 over 12 months would get a cheque for #115.

The Alliance & Leicester card has no annual fee and the APR is 17.9%, with a lower rate of 12.9% for balances transferred from other cards. This rate applies for as long as the balance remains, rather than for the usual limited period. In addition, the transferred balance qualifies for the money-back scheme. There is also free purchase protection and a 46-day interest-free period.

The money-back card has proved a considerable success. Since it was launched in March the Alliance & Leicester has issued more than 100,000.

While the rewards make these cards more attractive than those of many traditional providers, especially for those who clear their balances every month, anybody who regularly borrows money over longer periods should look for a card with the lowest possible interest rate. The drawback of some of those with very competitive rates, such as the Co-op's Advantage card or the Royal Bank's MasterCard, is that they have no interest-free period, so they are not so attractive if you do clear your balance from time to time.

However, there are some cards which can give you the best of both worlds. The RBS Advanta, for example, is charging an introductory rate of just 9.9% for purchases and balance transfers until May 1, 1998, when its rate increases to 17.7%. People's Bank, the American lender, which launched a card here last year, has maintained a very competitive rate of 14.4%. Both cards have 56-day interest-free periods if you clear your balance.

Iain Clink of RBS Advanta suggests that consumers can get an even better deal by combining a reward card with a low-interest card if they want to spread the cost of their purchases. ''They can pay for goods with their reward card and then transfer the balance to us. We offer an automatic transfer system. So all our cardholders have to do is ring us with details of their other cards and we will pay off the balance for them,'' he explains.

A similar arrangement is available at People's Bank. Earlier this year it introduced a cheque facility which enables customers to pay off more expensive debts, such as overdrafts, loans or other card balances, or to pay individuals or organisations that don't normally accept credit cards.

An analysis of the way customers were using the cheques showed that of the total amount paid, 31% was made out to credit card providers whose APRs exceed that of People's Bank and 28% was made out to other banks and building societies. In addition, 2% was paid to Marks & Spencer, which accepts its own charge cards but not credit cards.

Mr Clink says consumers are becoming more willing to change credit card providers but there are still too many who stick to the cards issued by the bank which runs their current account. He urges these people to look at what else is on offer. He says: ''It is not difficult to switch to a new credit card nowadays and they could save themselves pounds.''

Cost of borrowing

APR Interest-free period Cost of borrowing #1000 for 6 months

A&L (Money Back)17.9% 46 days #85.71

Bank of Scotland21.1% 50 days #105.38

Clydesdale 22.9% 56 days #113.17

People's Bank 14.4% 56 days #69.74

RBS Advanta 9.9%*/17.7% 56 days #48.35/#82.20

Royal Bank 23.2% 56 days #114.48

Tesco 16.9% 56 days #81.22

TSB 17.9-21.9%** 56 days #104.48

* Introductory rate ** Depends on amount borrowed

Source: RBS Advanta