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