During the past 12 months, 18 million cardholders in the UK have received credit-card cheques. Around 144 million are issued each year, even though the vast majority of these are unsolicited, nearly 4 million people have used one or more in the past year, spending almost £3.4 billion in the process.

Banks and card providers send credit card cheques to customers, often accompanied by marketing material that encourages spending. They may seem a useful alternative to plastic, particularly when paying tradesmen such as plumbers and electricians who can't take credit cards, but their use is expensive when compared to normal card spending and this greatly outweighs any value.

Reasons why you should avoid using credit card cheques.

1. Handling Fees

An average handling fee of 2% is charged of the value of each cheque. This means for a credit card cheque of £650, a typical fee would be £13 per transaction. It's estimated that banks are profiting over £5.5 million a month thanks to these fees alone.

2. High APR

The average annual percentage rate (APR) on a cheque is 22%, which is much higher than average 15.5% for normal plastic spending.

3. No interest free period

Unlike credit cards, which usually give you an interest-free period of up to 56 days from the date of purchase, the cheques are subject to interest from the day they're cashed.

4. No legal protection

When you use a credit card cheque to purchase goods which turn out to be faulty or damaged, you don't have the same right to financial redress as in the case of items purchased with a credit card.

The Department of Trade and Industry launched an inquiry in November 2005 with its conclusion due shortly, but it has already ruled out a blanket ban on unsolicited credit card cheques. The Office of Fair Trading believe legislation is needed to protect consumers using credit card cheques.

Royal Bank of Scotland (RBS) and NatWest have recently scrapped credit card cheques for new and existing customers.

Article added: 18/09/06