Which credit cards charge dormancy fees?
"Will I have to pay a dormancy fee if I don't use my credit card enough? How much will it be?"
Dormancy fees, a nefarious charge that punishes cardholders for not using their cards, are relatively rare at the moment.
Most mainstream credit card providers no longer levy fees to customers who don't use their cards, or use them very infrequently.
Having said that, however, dormancy fees are still well worth looking out for especially with store cards and travel money cards, almost all of which charge for under utilisation.
Cards that charge dormancy fees
For those signing up to a new card now only some American Express credit cards and some prepaid cards still charge dormancy fees.
Fees for under use may still apply to other existing cards, however. Never assume that fees don't apply: check the card terms and conditions or ask the provider.
American Express credit cards
American Express charge a £20 dormancy fee on some of their credit cards: those that don't otherwise charge an annual fee.
These are the cards that we're aware of charging a dormancy fee at the time of writing:
- Nectar credit card (cost of credit)
- British Airways credit card (cost of credit)
- American Express Platinum Cashback Everyday credit card (cost of credit)
All of these cards charge the dormancy fee in the same way.
The fee will be charged if there is "no movement" on the account during the preceding 12 months and a balance of less than £4 or the account is in credit.
In other words, the fee won't be charged to those repaying a balance of more than £4 but not otherwise using the card even if they haven't made any transactions within the last 12 months.
However, those who haven't used the card to make a purchase in the preceding 12 months and who have an outstanding balance of £4 or less, could be hit with the £20 fee.
The fee is charged annually so cardholders can't pay more than £20 for dormancy in a 12 month period.
Note that previously the fee was charged if the aggregate amount of all transactions in the preceding 12 months, excluding cash advances and balance transfers, was £0.
Prepaid providers already charge fees for ordinary account activities like making purchases - see their most common costs here - so it's a bit cheeky, though not very surprising, that many charge for inactivity too.
Here are a few examples of fees charged by the most popular cards. All fees are only applied if there is a balance still on the card.
- The CashPlus Prepaid Gold MasterCard (more details) : £4.95 to £9.95 a month after 120 days inactivity, see our full review here.
- My Travel Cash prepaid Mastercard (more details) : This card has both a dormancy and an inactivity fee. The inactivity fee applies if the card can be used to make purchases and has a positive balance but has not been used in the past 12 months, from month 13 until the card is used the fee is £2 a month. The dormancy fee applies if the card became inactive 12 months before (i.e. it was cancelled or expired) and a balance remains. In month 13 until the card balance is claimed, the fee is £1 a month.
- Bread Card (more details) : this prepaid card charges £1 a month after 3 months of inactivity (no top ups or purchases) when there is a positive balance on the card.
Note that we haven't listed all the prepaid deals that charge dormancy fees here because the market is very large.
The charge is not an uncommon feature so it's worth looking out for on all prepaid deals.
Santander store cards: credit balance fee
Similar enough to a dormancy fee that it's worth mentioning here is the credit balance fee, a charge for holding a positive balance on the card.
Santander issued store cards charge this fee. That includes, but is not necessarily limited to, store cards issued by the following shops:
- Dorothy Perkins
- House of Frasier
- Miss Selfridge
The up to £10 Credit Balance Fee is charged if a cardholder has a credit balance on their account for three months in a row.
For example, if a cardholder buys something with their store card, pays off their statement balance, but then later returns the item, and doesn't spend the refunded amount for three months, they've left a credit balance on the account and would be subject to the fee.
Previously Santander did charge a dormancy fee, introduced in December 2010.
Existing holders of Santander issued store cards may still be subject to this fee, as it is the original terms provided when the card is taken out that apply.
Important note: older cards
Please note that these are only some of the dormancy fees which would apply to cardholders signing up today.
Unless cardholders are notified otherwise, the credit card terms which apply to them are set out in the terms and conditions document they sign when they take the card.
In short, checking the small print is essential: it's the only way to know definitively whether a dormancy fee will be charged on an inactive account.
To double check any card's dormancy fees look in the summary box of any credit or store card under the main 'charges' section or call the card issuer.
Why charge dormancy fees?
Card companies claim that they issue dormancy fees to claw back some of the admin costs incurred when maintaining the account of an inactive credit card.
According to David Black of financial research firm Defaqto, "a mix of bad debt write-offs from customers, fraud, and costs of running empty accounts means margins are being squeezed for many card providers. Introducing dormancy fees is a way to cover this."
And even making a profit
However, it's not a coincidence that a spate of dormancy fees in 2007 coincided with a £12 cap on the amount that credit card companies could charge in fees.
Prior to this, many card issuers had been charging two or three times this amount.
The fee cap resulted in huge financial losses for credit card companies, and left many card issuers looking for other ways of making up for the lost revenue.
That year, Lloyds TSB (now Lloyds Bank) were one of the first credit card providers to write to customers informing them that low usage would incur charges.
The bank imposed a £35 dormancy fee across their entire range of credit cards, although it has since removed the fee.
Later on in 2007 Barclaycard imposed a similar charge.
Cardholders who'd not used their credit card in a one year period were likely to be charged the £20 fee, although the provider also imposed specified minimum spending and usage limits on their customers.
It is thought that around one million Barclaycard customers were affected by the new charge and that Barclaycard managed to net an extra twenty million pounds as a result of the change.
A spokesperson from Barclaycard said at the time: "We will do everything we can to improve the deal we give people, encourage them to use our card, not someone else's and avoid fees."
A £20 fee represents less than £2 a month, Barclaycard pointed out, although they also later cut the fee.
Similarly, Santander's own credit card range now no longer sports a dormancy fee in the summary box despite a brief flirtation with the idea.
The fall in dormancy fees hasn't, sadly, meant a fall in fees in general: the charges were simply replaced by alternative ways to increase charges as regulators attempt to cut costs for consumers such as rising interest rates, cash transaction charges and annual fees increased and a widened definition of the type of transactions that can be construed as cash transactions.
The same pattern has since been repeating itself in the current account market.
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