Egg Cracks Up With 7% Rise

Half a million users of Egg Visa and Egg Money cards are in for a shock as Egg raises its yearly interest rate by up to 7%, despite Bank base rate being at a record low.

Users of Egg Visa and Egg Money MasterCard will be scrambling for the exits today, after the news of a hefty rate rise by the credit-card issuer. With effect from 6 March, more than 550,300 Egg cardholders will see their interest rate rise. Borrowers will see their yearly interest rate rise by up to 7% APR, with the maximum rate leaping to a whopping 25.9% APR.

A bad Egg?

This isn't the first time that Egg has left its customers boiling with anger. Last February, the card issuer closed the accounts of 161,000 customers, claiming that they were too risky (although at least three millionaires were affected, see Egg Cancels 161k Credit Cards). In August, in More Pain For Egg Customers, I warned that Egg's typical APR was to leap from 7.9% to 12.9% APR, plus its transaction fees for cash and foreign purchases were set to rise.

On average, these Egg customers will see their annual interest rate rise by almost 4.4% APR, with the biggest rate hike being 7%. Egg customers who don't wish to pay their new higher rate can cancel their credit card and repay the outstanding balance at their existing rate. These cardholders will not be able to spend on their card, and their account will be closed when the balance reaches zero. On the other hand, Egg has cut rates for 120,000 of its two million cardholders.

Has Egg cracked?

It does seem unfair that credit-card companies are increasing their interest rates in a period when the Bank of England has slashed its base rate from 5% in October to an all-time low of 1% today. However, Egg clearly needs to rebuild its profitability as it copes with from increasing levels of bad debt.

This series of credit crackdowns suggests that Egg hasn't been performing well since it was bought in May 2007 for close to £550 million by giant US bank Citigroup. Since Egg's takeover by Citigroup, banks have lost hundreds of billions of pounds in a global credit crunch. Hence, Egg is cracking down on credit limits and interest rates -- a move which affects its best payers, as well as riskier borrowers.

In some cases, existing Egg customers will be charged an APR of 26.9% on new purchases and existing balances. Given that a typical credit card charges under 18% a year, Egg is now at the pricey end of the market. Thus, if you're unhappy with Egg's latest rate rise, then it's time to vote with your feet -- especially if your personal circumstances haven't changed and you resent this rate hike.

Time to get poached?

Egg is still advertising for new customers, offering a typical rate on purchases of 16.9% APR, which must be offered to at least two-thirds of successful applicants. Therefore, it seems that the lender is clearing out unprofitable and high-risk cardholders while seeking to replace them with shiny, new customers.

Then again, this cuts both ways, as credit-card companies offering 0% balance transfers will be happy to poach Egg customers with good credit records. However, full payers (those who always repay their entire balance in full each month) may stick with Egg Money, because it offers an attractive 1% cashback on all purchases.

In summary, my advice would be not to take Egg's blow on the chin. Instead, you can dodge its latest rate hike by cancelling your credit card and repaying your existing balance at the old rate. Even better, by transferring your existing Egg balance to a 0% card, you can avoid interest for up to sixteen months (on payment of a one-off transfer fee of around 3%).

Finally, I apologise for all the puns (boiled, scrambled, poached, etc.), but Egg has always been the top brand for financial yolks -- I mean jokes!

Many thanks to Dr Martyn Saville of Which? magazine for his help with this article.

More: Find a cracking credit card | Blitz Your Debts In One Easy Step | Steer Clear Of Secured Loans

Editor's note: Egg asked for the opportunity to reply to this article. Here is Egg's response:

'Our recent re-price of a quarter of our customers included 120,000 customers whose rates went down not up.  It also did not include anyone who had been re-priced in the last 6 months or had opened an account in the last 12 months. We took a risk based approach considering factors such as customer behaviour on accounts since opening, the credit history of the customer and funding costs within the current environment.

In line with the new Government guidelines, customers have been given the option to decline their new rate and continue payments at their old rate. 

Our rates remain highly competitive with our average APR across all our customers being 15.85% against an industry average of 16.30%.

If any customer is having trouble with their monthly payments we would like to hear from them. They can speak to one of our trained specialists on 08456 000 296. Options we might be able to provide include short term reduced payments and arranging an affordable payment plan as well as other solutions tailored to customers' needs.'