If you don’t spend big on plastic and dust starts to gather on your credit card, you could get hit with inactivity fees by your provider. Here are the main culprits that charge customers for staying out of debt.
With bank charges in the headlines and greater credit card regulation, banks and credit companies are turning to other ways to make a profit.
Some credit companies now not only charge interest when you use your credit card, but also apply a charge if you fail to use it enough!
These ‘inactivity’ or ‘dormancy’ fees are generally applied if you don’t make any new purchases with your card over a period of approx 6-12 months. So if you purposely avoid using your credit card so you don’t pay interest, you could still be caught out.
Who does it?
Inactivity or dormancy fees are not commonplace in the UK, but in recent years some big banks and financial institutions have started to introduce them to boost their profits.
This means you have to be careful not to get caught out.
Store cards are one of the worst culprits and are most likely to catch you out if you don't spend on them regularly. Those from the likes of Debenhams, House of Fraser and Laura Ashley are all provided by Santander and will charge you £10 if you fail to buy something in a 6 month period.
Like its store cards, Santander also imposes a £10 dormancy charge on both the Santander Zero card the Santander Credit Card after a six month period of inactivity.
American Express currently charges an inactivity fee of £20 on their Platinum credit card if no new purchases are made for 12 months.
Is it just credit card companies?
Unfortunately it is not only credit and store cards that charge you for not using them over a set period of time.
Several pre-paid cards also impose a charge when they’re not used for a certain length of time, for example the Blue Sky Card would charge £1 when the card is not used for 90 days.
Similarly many share-dealing accounts also impose a charge when not they’re used; The Barclays Trading Account imposes a charge of £12 a quarter, while the TD Waterhouse Trading Account charges £10 a quarter when the accounts are not in use.
Regardless of the type of financial products you have keeping an eye on your terms and conditions is a wise move, even if your credit card doesn’t levy a dormancy fee now there is a chance it may do in the future, so make sure you read through any changes before shredding your mail from the banks.
Will I be charged?
If you’re not sure whether your credit cards charge a dormancy or inactivity fee, you need to check your card’s terms and conditions.
If you’ve had your card for a while it’s possible an inactivity fee may have recently been introduced. Your provider will have had to send you a written notification to that effect – however, if you don’t have the letters to hand you should be able to get a copy of the latest terms and conditions from their website.
If your provider does levy an inactivity or dormancy charge you will need to check the period of inactivity after which it's applied - i.e 6, 9 or 12 months - as well as exactly how your card company defines inactivity. Some card companies will consider any new transactions as a sign of activity while others may only view new purchases as a qualifying activity.
Once you know the parameters for a dormancy fee you should be able to work out whether you are likely to face a charge.
How can you avoid the charges?
You may want to consider cancelling credit cards you no longer use so as to avoid any chance of incurring this type of charge.
Doing so will also improve your credit score as it will mean you have less available credit to hand in relation to your ability to repay.
When you cancel your credit card you will need to inform your provider directly rather than simply cutting up your card. There will be a customer services number printed on your credit card statement or on the back of the card itself that you can ring to close the account fully.
However, before you cancel you will need to consider whether you ought to keep the card for emergency credit should the need arrive, or whether another you have would suffice.
If you’re unsure whether you should cancel your card read our guide Should you Cancel your Old Credit Cards?
If you decide that you still need a credit card, just in case, you should find a card without any dormancy fees and then, once you’ve been approved, cancel the card that charges.
Alternatively, if you want to keep your current card but avoid the charges you will need to check your terms and conditions to find out exactly what you need to do to be exempt from the fees.
However, remember to always pay off any balance in full otherwise you will be clobbered by interest on your outstanding purchases instead!
If you find that you have to pay interest to avoid inactivity charges you should seriously consider changing your card to save money.
For help choosing the best credit card for your circumstances follow our Action Plan How to find the best credit card.
