We owe no loyalty to big-name cards

If you are one of the 7 million people with a Barclaycard, you can now use it to get 20 per cent off your BT phone bill.

It sounds great - but obviously there's a catch. You have to register for the scheme, then dial 1374 before you make every call. You might forget to do this, in which case by spending pounds 5,000 on your Barclaycard you can earn enough points to get a device which activates the discount without the code.

Doesn't sound so good now, does it? But if you don't read the small print it sounds enticing, and that's good PR for Barclaycard - as was its decision to drop interest rates below 20 per cent for the first time. The standard APR is now 19.9 per cent.

This week Lloyds-TSB is launching a new range of credit cards, which are certain to be cheaper than its current offers (all more than 20 per cent APR).

All this is window dressing. We know the high-street cards charge over the odds - and yet we stick with them. Six out of 10 card-carrying adults have the banks' plastic and half of us don't pay off our bills in full each month, so millions of people are paying too much interest. If you have an average of pounds 500 outstanding over the year, you'll be paying pounds 52 more interest at NatWest (21.9 per cent) than at the cheap US issuer Capital One (11.9 per cent). Bigger spenders lose out even more: a pounds 2,500 debt is pounds 212 a year cheaper at Capital One.

This apathy means credit cards are an embarrassingly easy way for banks to make money. Despite losing market share - down from a third to less than 30 per cent over the past three years - Barclaycard is still a tidy earner for Barclays Bank: last year it reported operating profits of pounds 340m. Industry estimates suggest that the big banks have a profit margin of at least 10 per cent on their cards. So why has Barclaycard bothered to add new frills?

"Things aren't static and you need to update your package," says Tim Kiy, Barclaycard's head of brand marketing. "We were the first credit card but there are many more players in the market now - both home-grown ones and American entrants."

Barclaycard's efforts look unimpressive when compared with the rewards on offer from comparable "added-value" schemes such as Goldfish and Alliance & Leicester's MoneyBack card. A&L gives cash back, and Goldfish gets you money off your bills or discounts in shops. Both schemes are worth an average of 1 per cent of what you spend on the card and there are no annual fees (see box).

The new US cards concentrate on low interest rates. "A lot of research we do suggests people want value for money," says Patrick Nelson at Capital One.

But the high-street cards will keep getting new customers because there is still a big untapped market. According to the Credit Card Research Group (CCRG), 80 per cent of Americans have a card, against just 39 per cent of British adults.

Nick Cobban, director of the CCRG, says the gap between the high street and the discounters is likely to narrow. "If we look at interest rates at the moment, quite a few cards offer very low rates for a few months and then they rise more in line with other cards. In the long term it is quite likely that when these companies are more established, they will move their rates up and converge with established cards whose rates are coming down."

So if you are apathetic enough to stick with your NatWest Visa, there may be cheaper borrowing ahead. Just don't hold your breath.

PERFECT PLASTIC

Don't just go for the card with the cheapest headline rates; different cards suit particular spending patterns. Decide where you fit in and choose a card that "fits" your profile.

Uptight. You have a credit card but don't like debt and pay off the bill every month.

Best buys: interest rates are irrelevant. Look for a card without an annual fee which gives useful perks. Alliance & Leicester's MoneyBack card (0500 838383) has an APR of 17.4 per cent and you get a cheque automatically once a year. Goldfish (0345 609060) has an APR of 19.8 per cent and gives money-off vouchers for shopping and bills.

Dozy. You pay off all or part of the bill when you remember - but often miss the deadline. And most cards charge pounds 10 to pounds 12 each time you pay late.

Best buys: no fee, a long interest-free period and no late payment fees. Liverpool Victoria (0800 134134) has an APR of 18.9 per cent and doesn't charge for late payment. Neither does Barclaycard (01604 234234) - APR 19.9 per cent and a pounds 10 annual fee unless you spend pounds 2,000 on the card.

Dependent. You always owe money, pay off the minimum each month and treat the credit card as a permanent overdraft.

Best buys: go for something very cheap. You are a dream customer and may be targeted for very low "teaser" rates. RBS Advanta (0800 077770) has been marketing a card at 5.9 per cent APR to selected databases; its general rate is 6.9 per cent to January 2000. Capital One (0800 952 5252) is now offering a permanent low rate of 11.9 per cent APR.