I just received a credit card offer from Capital One in the post today. They offered me a credit card with a 34.94% APR. Yes, thats right, 34.94%. Lets put this in perspective.
Lets say on your 18th Birthday your parents give you £100. Being sensible you invest this in a pension scheme which of course saves you tax etc. Over the next 45 years the pension scheme earns 34.94% interest annually. Guess how much you would be worth when you reach 65 years of age.
£670 Million
Lets say mum and dad could afford to give you £5000 pounds and you did the same with this. How much would you be worth at retirement.
£33.5 Billion
For our American cousins thats
$65.3 Billion
You’d be the richest person on the planet by a long margin. Bill Gates would be asking you to dinner.
To say I was dumb struck is an understatement. I had a look on their website and they are offering credit cards for 9.9% APR. So if you take their mail offer up they charging you 3.5 times more than on line customers. What customers are unlikely to check on line? Yes, the elderly and low income.
I don’t know about anyone else but charging 34.94% interest seems morally wrong to me. I recently read the book Super Crunchers and to be honest I am pretty sure that I am just one of a random selection of customers they have sent offers to.
Capital One have been pioneering the use of random statistical tests to see where customer pain points are. It works like this.
100,000 customers get offered credit cards (the numbers following are just examples). The customers are broke up into random segments where
25% get offered the credit cards at 34.94%
25% get offered the credit cards at 24.94%
25% get offered the credit cards at 14.94%
25% get offered the credit cards at 9.94%
They then count how many people in each segment take the offer up. Capital One can then work out where the maximum profit point is. This sort of thing is going on all the time so I shouldn’t be that annoyed about it but I just cannot help feeling it’s wrong.
Note: For these people who scoff at me not including inflation try the calculation where we assume our enterprising little investor saves the same amount each year plus another 10%.