Goodbye to costly credit card cheques
Credit-card cheques are being phased out by card providers, with MBNA scrapping them completely next month.
50 million credit card cheques were sent out in just three months last year by credit-card companies according to the UK Cards Association, with users spending £537 million with them in that period.
The surprise move by MBNA, one of the largest credit-card companies which admitted sending out ‘tens of millions’ of cheques last year, pre-empts the Government’s ban on all unsolicited credit-card cheques.
The problem with credit-card cheques is that users often don’t realise they are treated as a cash withdrawal
Card companies will no longer be able to send them out unrequested once the Financial Services Bill is passed. It is expected to become law in June.
Interest rates on cash withdrawals can be as high as 35%, nearly double the average rate of 18% charged on purchases. There can also be cash withdrawal fees of up to 3% of the amount.
What’s more there is no interest-free period on cash withdrawals, even if you pay your card bill off in full by the due date. And as any part-payments usually go towards the cheapest card debt first, such as 0% offers on balance transfers and purchases, using a cheque can be an expensive option.
Although the Government is clamping down on this practice, the new rules are only coming in at the end of the year. Then your payments will clear the dearest debt first.
MBNA will stop providing any cheques from today though those they have already sent out can be used after March 31.