THE Swindon-based Nationwide building society has revealed that credit card providers make £500 million extra in profit every year from the way they allocate the payments customers make to their accounts.
Nationwide says that banks make money by applying payments to the cheapest debt first.
Almost all UK card providers choose to firstly allocate payments to outstanding balances at the lowest rate of interest leaving balances at higher interest rates, such as purchases and cash advances to continue to accrue interest.
Nationwide says it is the only major credit card provider that applies payments to the most expensive debt first across all its credit cards.
Nationwide executive director Stuart Bernau said: "This is a policy that enables the banks to make half a billion pounds of profit every year or £50 per year for every credit cardholder affected. I don't believe that consumers really understand how they are charged interest on their credit cards."
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