Credit card lenders call time on borrowers' benefits

Credit card lenders are cutting benefits and the value of special offers following a punishing price war for borrowers. A string of lenders have reduced the value of benefits such as cashback and loyalty schemes in recent weeks, while rivals have pulled their most generous introductory interest-free offers.

On Thursday, Barclaycard, the UK's biggest lender, withdrew from the Nectar rewards scheme, though it has introduced free travel insurance as a replacement benefit. The Nectar scheme has signed up American Express as a replacement. Sainsbury's Bank has also withdrawn its loyalty and cashback scheme in recent days.

The two lenders follow in the footsteps of rivals such as Royal Bank of Scotland, Nationwide, Mint, Halifax and Egg in reducing the benefits available to credit card borrowers.

Samantha Owens, head of research at analyst Moneyfacts said, "It is becoming increasingly difficult for customers to find a card that offers the kind of benefits that were commonplace a year ago. Not only have cashback deals been severely cut or in a number of cases totally withdrawn, but incentives such as Nectar points and AirMiles are also less widely available."

The reductions follow increasing concern among credit card lenders about the cost of acquiring new customers. Over the past three years, lenders have competed by offering lengthy introductory periods of interest-free credit on both new spending and balances transferred from existing cards. The deals are thought to have cost the industry more than £1 billion over the past year.

Many lenders have been caught out by the increasing number of borrowers who switch their accounts from offer to offer, never paying any interest at all.

To counter such customers, many lenders are now introducing fees when borrowers transfer debts to their cards. Virgin Money this week introduced a 2 per cent balance transfer fee, subject to a maximum charge of £50. Halifax, Barclaycard, Egg, and Mint have all introduced similar fees.

Peter Gerrard, of price comparison service Moneysupermarket, said: "Virgin's move is likely to encourage other providers to follow suit - the death knell is sounding on the free 0 per cent balance transfer."

Currently, only Marbles and the Co-op Bank offer free balance transfer deals with 0 per cent interest. However, many borrowers will still be better off switching because the interest they save on a large balance will outweigh the effect of the transfer charge.