Credit card interest rates labelled banks’ ‘dirty little secret’

As official cash rates plummet, hurting older Australians with cash in the bank, credit card rates are a potential trap for all.

credit card rates

The Reserve Bank has been pushing official interest rates to record lows, which has been good news for anyone with a mortgage but bad news for older Australians with money in the bank. But interest rates on credit cards have not been following the same trajectory.

YourLifeChoices member Beejay wrote: “With all the bank interest rates for house purchasing, and bank interest lower payments because of rate decreases, why does my bank still charge me 17.49 per cent interest on my bankcard purchases if I do not pay the balance out each month?”

He asked us to investigate. We’ve found that Beejay could consider himself lucky.

The Reserve Bank of Australia (RBA) has reduced official cash rates to 0.75 per cent since November 2011. However, standard credit card rates as measured by the RBA have risen from 19.64 per cent to 19.94 per cent in the same time – actions that Erin Warner, director of campaigns at consumer group CHOICE, describes as “outrageous”.

“The banks know there are two types of customers – people who pay off their cards every month and those who forget once or twice or never do. And these are the customers they want,’’ Ms Turner said.

“It’s outrageous they are charging people who are struggling with their finances, in some cases over 20 per cent.”

Labor financial services spokesman Stephen Jones told The Australian: “There is a name for high credit cards rates when the headline interest rate is at an all-time low – a rip-off.

“Credit card companies and banks have got to come to terms with the new world… Credit card providers need to offer a fair deal or lose their business.”

RateCity director of research Sally Tindale said Westpac had lifted interest rates on some cards in May last year and ANZ had done the same in August, despite RBA rate cuts in June and July.

Money expert Nicole Pederson-McKinnon, founder of nicolessmartmoney.com, said credit cards were the banks’ “dirty little secret”.

“The fact is credit card moves, or the lack thereof, don’t attract the political or public outrage that mortgage moves do, so they can get away with it,” she said.

An ANZ spokesperson said the high rates of interest on credit cards reflected the heightened risk associated with credit card lending, and the cards with the highest rates were those that offered a range of perks, such as reward points and insurance on purchases.

The banks have, however, been quick to pass on RBA cuts to cash deposits. The average rate of return on $10,000 in a one-year term deposit has dropped from 5.3 per cent just before the RBA began cutting in 2011, to 1.25 per cent today, The Australian reports.

And back to Beejay: “I am an aged pensioner, and so receive no benefit from the Reserve Bank’s interest rate cuts. With my little bit of bank interest now being paid on my savings account, it is hardly worth having what’s left of my life savings in the bank, perhaps it would be safer and more accessible under my mattress? Or buried in my backyard in an old syrup tin?”

Are you careful to pay off your credit card before interest is charged? Do you believe credit card interest rates are banks’ “dirty little secret”?

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    COMMENTS

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    Nerk
    9th Jan 2020
    10:10am
    If rates go below zero then you have to pay them, so when that starts draw out, put somewhere else under bed lol
    Arvo
    9th Jan 2020
    12:19pm
    Money-Savings
    The the only way to make your money grow is risking it on stock market shares. Money under the mattress will depreciate in value while shares may appreciate and may pay you a generous dividend, the risk is the opposite outcome.
    But, beware of any enterprise or share broker offering a high return on your investment because, if it sounds too good it will be a good disappointment
    and / or a total loss.

    Credit Cards
    If you owe $5,000 at 19.99% pa interest then it will take you approx 77.22 fortnights to clear the debt. That's a repayment of $100 per fortnight
    AND NO USAGE OF THE CARD AT ALL DURING THAT PERIOD OF REPAYMENT!!
    I haven't taken into account the additional cost of credit card annual fee ranging from $65-$96 or any late payment fees.
    ray @ Bondi
    9th Jan 2020
    11:25pm
    and why do you think the government is working hard to making cash redundant, it will happen, then there will be no control of any aspect of one's life.
    Star Trekker
    9th Jan 2020
    10:42am
    I gave up on credit cards years ago. I have a Mastercard Debit card, this ensures the ability to purchase online when there is no paypal.
    john
    9th Jan 2020
    11:27am
    Thats fine Star Trekker , the point in this story is CREDIT cards, when you have a debit card you are actually using your money, when you use a credit card you are actually taking out a small loan from someone else, that you pay back with astronomically high interest rates.

    What its saying is the banks want the poorer people who need and of course sometimes just want, so they are prepared to go credit carding, where as some go credit carding because they have no choice , and that is the western societies way of operating, pricing of goods for massive profit (and who sets the price????) , and it becomes a disease that leads to the never never syndrome, for just about anybody, most people can't buy a car out of their back pocket, even a fridge , so credit is what we survive on, some get caught and the criminals the Banks, get to them, some get by and have enough to keep up with all the payments every week, and just get by, or some have it sussed out and get by quite well.
    But if you own a car or a house , the odds are you are paying it off, or have paid it off, its how the system works, its the greed and profiteering that has made capatilism so damned corrupt these days, still its the free system we fight for, if you go down or up , its free, and I guess it is up to you in the end. But the banks are criminals in different clothing!
    Anonymous
    9th Jan 2020
    5:58pm
    Indeed, john - it's called 'loan sharking'...
    Star Trekker
    9th Jan 2020
    11:38pm
    John,

    I did have a Credit card, due to the high rates "I gave up on credit cards years ago." I have no finance at all. I budget for everything.
    101
    10th Jan 2020
    8:25am
    It's called a CREDIT CARD for a reason. If you have one and use it you are assumed to know the terms. If you break those terms the provider is entitled to exercise those terms.
    If you don't like those terms, don't use the card.
    Tood
    9th Jan 2020
    10:50am
    Forget the secret the banks are just plain dirty

    9th Jan 2020
    10:53am
    report
    reply
    Forget the secret the banks are just plain dirty




    VeryCaringBigBear
    9th Jan 2020
    10:52am
    remove
    reply
    Love my no fee credit cards and use them everywhere as I don't carry cash any more. I not only get free flights but free travel insurance and lots of other goodies for nothing. Sure beats the risks in carrying cash. It does not matter to me how much interest they charge.

    I am so glad Centrelink has cracked down on people loading their credit cards with cash so it doesn't count towards the assets test too.
    johnp
    9th Jan 2020
    12:22pm
    Thats sounds good VCBB. Love to know what bank is giving
    "no fee credit cards, free flights, free travel insurance and lots of other goodies for nothing" ??
    Also its quite obvious that banks are ripping everyone off. Look at the industry super funds giving their members double digit returns/growth over a long period now. If the industry super funds can do that then the banks should be able to also. Assuming they have similar expertise internally etc.; which they surely would have
    Anonymous
    9th Jan 2020
    12:31pm
    I just asked the banks to waiver the credit card fees.

    SMSFs have even higher returns than those industry super funds that is why they now have the most money invested in them. Unfortunately there is no published results on SMSFs as they are not required to do so.
    KSS
    9th Jan 2020
    1:03pm
    johnp, a simgoogle search on fee free credit cards brings up a list of those available.
    KSS
    9th Jan 2020
    1:17pm
    Ooops! A simple Google search!
    Anonymous
    9th Jan 2020
    6:01pm
    Mafia Investments Inc.. BB earns $80k a year on a $400k investment portfolio...20% regular as clockwork... pays no tax... has every perk under the sun... travels the world free, sufficiently to spy out the number of pensioners on cruise ships...live in an area where every pensioner has sunk their millions into their house so as to cop a pension for free........ then he was startled awake by the ringing of the 6am bell for breakfast of porridge and toast... game of bingo.... bit of TV...
    Anonymous
    9th Jan 2020
    6:02pm
    A very large number of SMSFs are failures.... but you know that, BB..
    Anonymous
    10th Jan 2020
    11:01am
    Ha ha I am up well before 6am to enjoy the morning while it's cool and the birds are singing at their best.
    john
    9th Jan 2020
    11:15am
    All this writing about the banks and credit and so on ,well, it's fine , but nothing ever happens about it.
    It's alway advice about how to avoid things like bank rip offs?.
    But thats like someone saying that its up to you to avoid a thief , but the police won't help out by catching the crims! The banks have proved how corrupt and greedy they are . When will some government really take them apart, and some of their CEO's be held responsible and jailed .
    Arvo
    9th Jan 2020
    12:27pm
    Whatever! At the end of the day it's the credit card holder who makes a choice to get into debt not the banks.
    101
    10th Jan 2020
    8:29am
    Spot On Arvo, but wait, maybe it's the Govt's faulty, or migrants, or gen Y's, anyone but them.
    SuziJ
    9th Jan 2020
    11:46am
    That's the main reason why I refuse to have a credit card. If I can't afford it, then it just doesn't get bought. These are 'wants', and not 'needs' eg if I want a new appliance for the kitchen, and I can't afford it, it just doesn't get bought. But if I need food, that's budgeted for so I can afford it.
    Troubadour
    9th Jan 2020
    11:58am
    So right SuziJ. We were taught the difference between want and need as children. My dad always said if the money isn't there for it, then you do not have it or you save up for it. We have always taught our children to try and put something by for emergencies etc.
    We gave credit cards away when we retired
    Triss
    9th Jan 2020
    3:29pm
    Yes, and the banks and government are pushing us into a cashless society.
    Anonymous
    10th Jan 2020
    12:10am
    ...an d classless....
    ceejay
    9th Jan 2020
    11:47am
    As part-time pensioners and drought-impacted livestock farmers, my husband and I are forced to live on our credit cards to survive. About 4 years ago, NAB forced us to repay our floating Farm Management Mortgage when a new bank officer came aboard, despite the former rural manager suggesting we keep a balance in the mortgage account, pay the annual account keeping fee, make payments when we could, and draw on more funds as required. Thankfully we did not follow their initial advice to cancel my credit card … I have a little bit of money in a NAB interest account at .7 per cent interest, but they still want to charge us 19.9 per cent on the outstanding balance on the credit card. Rubbish re unsecured risk on credit cards - NAB still holds the deeds of our farm even though the mortgage has been long paid out because of their bullying. It is time for the Federal Government to set a maximum rate of interest on credit cards of about 5 per cent higher than the current cash rate. Bloody ripoff, my oath!!!
    Arvo
    9th Jan 2020
    12:34pm
    if you paid off your mortgage to this bank and if you don't owe any more money on a secured arrangement with the bank then the bank is holding the deeds unlawfully if they have ignored your request in writing to return the deeds ,seek legal advice.
    ceejay
    9th Jan 2020
    11:47am
    As part-time pensioners and drought-impacted livestock farmers, my husband and I are forced to live on our credit cards to survive. About 4 years ago, NAB forced us to repay our floating Farm Management Mortgage when a new bank officer came aboard, despite the former rural manager suggesting we keep a balance in the mortgage account, pay the annual account keeping fee, make payments when we could, and draw on more funds as required. Thankfully we did not follow their initial advice to cancel my credit card … I have a little bit of money in a NAB interest account at .7 per cent interest, but they still want to charge us 19.9 per cent on the outstanding balance on the credit card. Rubbish re unsecured risk on credit cards - NAB still holds the deeds of our farm even though the mortgage has been long paid out because of their bullying. It is time for the Federal Government to set a maximum rate of interest on credit cards of about 5 per cent higher than the current cash rate. Bloody ripoff, my oath!!!
    Blossom
    24th Jan 2020
    11:21am
    I would get advice to find out if the bank legally has the right to hold the deeds on the farm. I presume the house was included in the farm deed.
    You could check with Centrelink if you could get a reverse "mortgage" to be taken out of your "deceased" estate. If they so "no" maybe contact your Member of Parliament for advice.
    Horace Cope
    9th Jan 2020
    11:57am
    It's fine to highlight the rip-off interest rates on credit cards but there is nothing that can be done to change it. It must be remembered that banks are a business answerable to shareholders and nobody else. That's just the same as your average small business except in that case the "shareholders" are the owners of the small business. All businesses will stay viable if they adapt to the market and that includes pricing.

    The ACCC has investigated the banks and oil companies for possible collusion which is against the law but I believe that the banks and oil companies are too smart to be caught. This is the only area where pressure can be brought to bear as no government can tell any business how to set prices.
    KSS
    9th Jan 2020
    12:39pm
    And don't forget that most people have a superfund who are themselves shareholders in the banks!

    9th Jan 2020
    12:36pm
    If you think credit cards are bad then you need to look at the new kids on the block. Afterpay, Zip etc. They are nothing more than a marketing ploy for people to spend money now instead of waiting for the product they want to come on special. It cost retailers nearly 10% of the purchase price. Next time I want something I am going to ask abut using Afterpay and if they say yes I am going to ask for a 10% discount if I don't.
    Anonymous
    9th Jan 2020
    6:03pm
    Advanced Loan Sharking Inc - the banks are merely Loan Sharking Inc...
    KSS
    9th Jan 2020
    12:54pm
    Frankly credit card interest rates are of no concern to me. They could double for all I care since these fees are the easiest to avoid. If you can't afford to pay off the card each and every month, you can't afford to have the card in the first place.

    There are always going to be people who will try and justify their debt level and the amount of fees they are 'forced' to pay on credit cards, but ultimately they are rsponsible for thier spending and non-payment of what is essentially a loan. Blaming the banks for one's own poor financial management is simply trying to outsource personal responsibility.

    And for those in genuine financial hardship, there are far cheaper sources of borrowing than a credit card.

    And just for good measure, it is not just pensioners that are suffering with low returns on cash deposits. It is everyone who has money in the bank.
    Anonymous
    9th Jan 2020
    6:05pm
    Don't use 'em - checking with a major building materials supplier for an account for re-building burnt out homes on a volunteer basis... they referred me to the credit branch, and I said I don't want credit, just an account and access to any discounts for an account.. cash will be paid for every purchase...

    They're OK with that but I won't mention their name...
    floss
    9th Jan 2020
    1:01pm
    Our honest P.M .did say 26 times there is no need for a Royal Commission into our banking system what more assurance do we need.
    Anonymous
    9th Jan 2020
    3:32pm
    All we got was a witch hunt that found no witches so our PM was right.
    ray @ Bondi
    9th Jan 2020
    11:28pm
    here here, it just shows you how believable politicians are, sadly right-leaning ones seem worse.
    Anonymous
    10th Jan 2020
    12:13am
    '''no witches found....ROFL...

    9th Jan 2020
    1:31pm
    Banks gouging customers: Nothing new there...
    Triss
    9th Jan 2020
    1:56pm
    Nothing short of usury, the practice of making unscrupulous or corrupt monetary loans that unfairly enrich the lender. When was usury allowed to stop being morally wrong and become respectable finance for banks?
    Hasbeen
    9th Jan 2020
    3:30pm
    I wonder who it is holding a gun to peoples heads, forcing them to take out credit cards, & spend up big on them. I would never have a credit card, too big a trap for me.

    But then I budget. I know that from December 1st to March 31st I will have no disposable income. My entire pension is mortgaged to incoming major bills.

    2 electricity bills,
    Rates
    My car registration
    My car insurance
    house & contents insurance
    My wife's car insurance
    Plus the usual food costs combine to take all the pension for that 4 months. I know it, & arrange to have enough money in the bank before this period to cover eventualities, & obviously don't spend on non necessaries at this time.

    In other months, when there are no major bills coming in, we can save a bit, & buy the things we like, & like giving to our kids & grand kids. It is nor rocket science, it just takes some discipline & planning.
    101
    10th Jan 2020
    12:10pm
    I was led to believe that if you were a Pensioner that rego was free.
    V1K1
    9th Jan 2020
    3:41pm
    That's not the only rip off the banks make regarding credit cards. I have mine set up so they automatically pay the amount due each month. BUT they take the money out of my debit card on one day and pay the credit card the next day (or later). That means they've got my money to invest for 24 hours. They don't make much interest on my account. But consider the interest they'll earn from hundreds of thousands of customers when they invest that payment for 24 hours. And they do that 12 months of the year.
    Anonymous
    10th Jan 2020
    12:16am
    Often on the global cash economy - buying and selling national 'dollars' and thus altering the price and value of any national dollar...
    Anonymous
    10th Jan 2020
    10:58am
    Mine comes out of my account and goes into the credit card account in under a second.
    Hairy
    12th Jan 2020
    7:43am
    Why are we charged a % fee when using a debit card . I still carry cash rather than pay their rip off.of steer clear of businesses that charge.


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