Natwest leave RBS behind with Reward card rate rise

19 January 2016, 15:40   By Samantha Smith

NATWEST have raised the interest rates on their Reward credit card (cost of credit), from 17.4% APR representative (variable) to 23.7% APR representative (variable).

natwest bank branch
Credit: Simon Vayro/

The rise in the APR is mostly the result of a significant jump in the purchase and balance transfer rate, from 12.9% per annum (variable) to 18.9% p.a. (variable).

Anyone who uses their card for cash advances will find the rate of interest they're charged for those has effectively doubled, from 12.9% p.a (variable) to 25.9% p.a. (variable).

The rate rise also marks a split with Natwest's sister bank, RBS, who will still be offering the card at the lower rate.

Interest rates examined

Credit card interest rates have been increasing for some time now; separate pieces of research carried out for Which? and Moneyfacts suggest the average rates have risen by around 20% since 2009.

That's despite the fact that in March 2009 the Bank of England dropped the base to a record low of 0.5%; it's stayed put for almost seven years now.

Unsurprisingly, given that savings are flat and other forms of borrowing have become cheaper, there's been criticism of the card lenders' determination to buck the trend.

However, way back in 2010, when the base rate had been 0.5% for just over a year, the UK Cards Association issued a statement explaining why lenders were still charging the rates they were.

They pointed out that the average credit card APR "is, in fact, itself at a relatively low level historically" - and also that the cost of borrowing money to lend to us is "more closely aligned with wholesale market rates than base rate anyway".

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They said it was more likely that other costs - including admin, preventing fraud, covering bad debts and meeting the cost of section 75 cover - were more likely to have an effect on our APR than what the base rate was doing.

That said, some providers have committed to using the base rate to decide when they increase their own rates, including Halifax and Barclaycard.

But RBS and Natwest aren't among them, and it certainly wouldn't account for a jump of 6% in the APR of the Natwest card.

Promo rates not to blame

Another reason often suggested when credit card providers raise their rates is the knock-on effect of increased competition for balance transfers.

Banks and credit card providers are fighting so hard for this kind of business that promotional periods are getting ridiculously long - there are now are at least two cards available that offer interest free periods of up to 40 months.

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Many have also taken to lowering or even ditching the balance transfer fee, usually set at around 3% of the amount being transferred, to give them an extra edge.

We might, therefore, expect them to boost the interest rates they charge on other products, or at the end of the promotional period, to make up for the hit they take in offering ever more generous teaser rates and deals in the first place.

But RBS and Natwest famously ditched interest free periods on their credit cards in March 2014, calling them "teaser rate debt traps".

They chose instead to get rid of the transfer fee and offer lower rates for the life of the balance, as seen with the Clear Rate Platinum Card - and for a short while last year they even offered cash back of up to £50 on balance transfers.

Less rewarding

A possible reason for at least a proportion of the increase is that this is a rewards credit card.

Rewards cards tend to have higher APRs than ordinary credit cards; the annual fee or higher interest rates on borrowing with the card helps cover the cost of the perks we get.

Last autumn new rules came into force across the EU, limiting the fees providers could charge businesses for carrying out transactions with their cards.

Industry estimates suggested that the interchange cap could cost providers up to £2.4 billion - and to minimise the hit, some providers raised their fees while others cut back or closed their rewards schemes.

Natwest's Reward card however, has maintained its cash back rates and the previous interest rate of 12.9% p.a. (variable) for purchases, balance transfers and cash withdrawals was on the lower end of those found on an everyday card.

It was perhaps inevitable, then, that as the rewards have remained, the rates attached to earning them would have to rise.

As for the extent to which they've risen, Natwest told us that they were "constantly reviewed based on market conditions".

Different for now

So as they're sister banks whose products normally reflect each other, why haven't RBS done the same?

In a couple of words: Williams and Glyn.

This is the name of the new bank that'll be splitting off from the RBS Group by the end of the year; it'll take over RBS branches in England and Wales, and replace Natwest branches in Scotland.

As with TSB separating from Lloyds, the reappearance of the Williams and Glyn brand - last seen in 1985 - is the result of the 2008 bailout, which the European Commission said could only happen if the RBS Group sold off a portion of their business.

The team at RBS/Natwest told us that, as could be expected, getting Williams and Glyn up and running is "extremely complex":

"To ensure a safe and timely launch and to keep our commitments to the European Commission, we are making decisions that may lead to temporary differences in the new products we offer across our brands".

The good news, then, is that potential Reward Credit Card applicants can still apply for a version of the card with lower rates by going to RBS - but that's only likely to be in the short term.

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