We reveal shocking news for customers of online bank Egg. Get ready to pay lots more interest and new fees...
I’ve always been something of a cheerleader for online bank Egg. Egg started life in 1996 as Prudential Banking plc, a division of life-insurance giant Prudential. Then, almost ten years ago, on 11 October 1998, it was reborn as Egg*, the UK’s first – and the world’s largest – internet-only bank.
Egg gained kudos, for me, when it became the first lender in the UK to launch a 0% credit card for balance transfers. In other words, borrowers could transfer debts from other credit cards to an Egg Card and avoid interest for six months.
Of course, other banks rushed to join this bandwagon, so there are a hundred different 0% balance transfers available today – with much longer interest-free periods. For example, the currently market leader, Capital One, offers 0% on balance transfers until 1st December 2009.
So what about Egg? You may remember Egg came in for a lot of flak in February of this year, when it cancelled 161,000 Egg Cards. Although Egg claimed that it no longer wish to lend to these ‘risky’ cardholders, many had excellent credit records and three even claimed they were millionaires! Read Egg Cancels 161k Credit Cards for more details.
More bad news for Egg customers
Thanks to the ongoing credit crunch, rising bad debts and payment problems are hitting British banks hard. Thus, credit is becoming increasingly harder to get, and the cost of borrowing is going up. And it seems Egg is feeling a bit scrambled, because the company has passed on a hit to Egg Money (but not Egg Visa) cardholders in four ways. With effect from 4 September:
1. Egg Money cardholders will see their interest rate on purchases leap from a typical APR of 7.9% to 12.9% APR. In other words, their interest bill will rise by almost two-thirds (63%). However, this is still significantly below the rate charged by most cashback cards (around 16% or higher).
2. Cash withdrawals will attract a higher interest rate of 16.9% APR.
3. A fee of 3% (minimum £3) will be charged on cash withdrawals, balance transfers and gambling transactions.
4. The foreign-currency conversion fee increases from 2.65% to 2.95% of the value of each purchase.
On 99% of occasions, you should never use your credit card to withdraw cash or pay for cash-like transactions such as gambling bets. This is because you face a double whammy of sky-high interest rates and hefty fees.
This is no yolk!
Back in May, in Cash And Credit Cards Don't Mix, I selected the Egg Money card as the top Best Buy credit card for cash withdrawals. Sadly, the above changes transform the Egg Money card from a Best Buy into a Don’t Buy if you’re looking to make cash withdrawals. This is partly because Egg’s cash-withdrawal fee is now the highest in the market.
Also, customers being charged the new interest rate of 16.9% APR on cash withdrawals are shelling out more than the market average (16.5% APR). At 2.95%, Egg’s sterling-conversion fee is higher than average, too. In addition, Egg charges £2 for each paper statement, £2 for repayments made by cash or cheque, and a fee to round up monthly interest to a minimum of 50p.
How do you like your Egg?
Despite all this, the Egg Money card isn’t all bad. In fact, it has still two very good features. Firstly, it pays 1% cashback on all retail spending. True, the market leader, American Express, pays 5% -- but this only lasts for the first three months. The rate then drops to just 0.5% on the first £3,500. (Higher cashback rates are on offer, however, for bigger spenders.)
And secondly, it pays an interest rate of 4% AER on credit balances. So if you’re in credit on this card, you’ll be paid interest. This is pretty unique in the marketplace.
So, don’t automatically discount this card. It may still suit your needs – it all depends on how you plan to use it. For people who always pay off their monthly bill in full, like a straightforward and consistent rate of cashback and are often in credit on their card, Egg Money is still a card worth having.
But if cash withdrawal is what you want…
…then you should get out now before these punishing changes take effect. My advice is to immediately stop using your Egg Money to withdraw cash, and make arrangements to transfer your existing balance to a 0% credit card. Otherwise, the cost of using your Egg Money card could go through the roof.
For the record, there are now only two credit cards which don’t charge fees on cash withdrawals: the Abbey Zero MasterCard and the Co-operative Bank Clear Visa. With Egg out of the running, you may want to go for one of these cracking cards instead.
* Egg was almost named Oxygen. Not a lot of people know that.
Many thanks to Fool reader Paul S for alerting me to this news.
More: Find cracking credit cards today! | Don’t Be Too Keen At The Cash Machine | A Smarter Way To Spend
