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

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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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Written by Janelle Ward

46 Comments

Total Comments: 46
  1. 0
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    If rates go below zero then you have to pay them, so when that starts draw out, put somewhere else under bed lol

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      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.

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      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.

  2. 0
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    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.

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      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!

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      Indeed, john – it’s called ‘loan sharking’…

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      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.

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      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.

  3. 0
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    Forget the secret the banks are just plain dirty

  4. 0
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    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.

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      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

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      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.

    • 0
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      johnp, a simgoogle search on fee free credit cards brings up a list of those available.

    • 0
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      Ooops! A simple Google search!

    • 0
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      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…

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      A very large number of SMSFs are failures…. but you know that, BB..

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      Ha ha I am up well before 6am to enjoy the morning while it’s cool and the birds are singing at their best.

  5. 0
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    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 .

  6. 0
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    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.

  7. 0
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    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!!!

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      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.

  8. 0
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    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!!!

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      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.

  9. 0
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    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.

  10. 0
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    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.

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