Abbey has launched a credit card offering a very attractive 5 per cent cashback on £1,000 of supermarket shopping.

That’s a potential windfall of £50.

But before you rush off to fill out your application, there’s something else you need to know.

After an initial three months interest-free for purchases, those who don’t clear their spending every month will be charged a less than attractive rate of 15.9 per cent.

As a result, heavy users could soon find interest charges more than outweigh the cashback benefits.

Barclaycard, IF and Halifax all have cards which charge less than 10 per cent interest, and for someone who keeps a running balance, they could be better value.

But the interest rate isn’t the only cost you need to keep an eye on when choosing plastic.

Last year the Office of Fair Trading ruled credit card companies must keep penalty fees to a maximum of £12.

And while this might seem like a step in the right direction, consumer organisation Which? says they have simply found other ways to recoup the lost income.

So when you’re choosing a new card, it’s essential to check all the small print.

Which? advises paying close attention to…

• Annual fees and low usage charges
• Balance transfer fees
• Minimum payments designed to maximise your interest bill
• Payments allocated to the cheapest debt first
• The way interest is calculated
• Credit card cheque interest rates and fees
• Cash withdrawal rates and fees

This entry was posted on Tuesday, August 28th, 2007 at 11:56 pm and is filed under UK Personal Finance, Credit Cards. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.