High street blues

It's usually good news when you get a cheque in the post. Especially at this time of year, when the finances have as much bounce as a punctured football.

But an eagle-eyed reader in Norfolk who received a cheque for £350 saw that, on closer inspection, this wasn't a payment but a very expensive loan offer from a store card that she holds.

The cheque was real enough, made out in her name, with all the necessary account details. But if she had paid it into the bank, the money would have counted as spending on her store card - which would have meant borrowing against a store card with a sky-high interest rate to put money into her current account.

The Mackays Card in question has an interest rate of 29% APR, which is more than seven times the rate set by the Bank of England and compares with personal loans and credit cards on offer for less than 10%.

While the letter accompanying the cheque does say that the money will be debited to the card account, the high interest rate is nowhere to be seen - there's only a reference to the "normal rate of interest" applying.

Instead there's a load of seasonal flannel about "this time of year can be very expensive and that's why we've attached a cheque at the bottom of this letter to help spread the cost". And there's also a suggestion that you could withdraw more money on the card through cashpoint machines.

The card is operated for Mackays by Style Financial Services, which is part of the Royal Bank of Scotland group. And if you went straight to the bank, a personal loan for £1,000 would have an interest rate of 17.5%, which means that the bank's customers would be crazy to take up its own store card offer.

The Royal Bank of Scotland stands by the marketing approach - although you have to wonder how many of the bank's advisers would encourage customers to follow such a punitively expensive way of borrowing money.

Presumably not the Royal Bank of Scotland's Ian Stuttard, who began the year by urging customers to "make financial fitness your new year's resolution" with top tips that included "switch to a lower rate credit card".

And if you had a current account with Abbey National, Halifax or Nationwide, an overdraft would have an interest rate of less than 10%, which makes the idea of topping up a current account from a 29% store card even more outrageous.

This Christmas has seen shops raking in the money, with retailers reporting a 6% increase on last year. There are forecasts that high street spending exceeded £1m a minute during December.

But when it comes to store cards, there's no sign of anything being given back. Instead, consumers can expect a more thorough stuffing than anything given to the poor old Christmas turkey.

Mackays isn't the only retailer which charges vertigo-inducing interest rates. BHS, Habitat and Ikea all have cards with interest rates of 29% and there are plenty more around the 30% mark. When personal loans are available so much more cheaply, it seems a dismal reward for the customer.

Store cards don't need to be so expensive, because the John Lewis card has a standard rate of only 13% APR. And Marks & Spencer has a store card which charges 18.9% APR. And if they can both make money on that, it's hard to accept that other shops need rates that are so much higher.

It's not only on store cards where shops are charging Himalayan rates of interest. Credit deals from shops are often more expensive than personal loans or overdrafts.

A reader emailed with a warning about his experiences of buying a computer, where if you hadn't completed repayments in a nine-month interest-free period, you went through a financial trapdoor to a 29.5% interest rate - meaning that a £1,200 computer would end up costing £2,250.

These deals, which are offered by several major electrical goods stores, are promoted under the banner of "interest free", which holds only until you stray beyond the repayment deadline. After that, you're hit by interest rates which are much higher than you'd expect from a personal loan.

This reader, who was "suckered into paying for their over-priced warranty as well", was left with a sour feeling that the total cost was much larger than the headline price suggested.

When there's talk of using higher interest rates to hose down the consumer spending boom, it's worth remembering what a huge spread of rates already exists, and that the bargain basement bank rate has little connection with the much higher rates that some unhappy shoppers are already paying.