April 28, 2011
Australians are spending in excess of $1.3 billion in credit card fees each year, despite the fact that more than two dozen fee-free cards now exist in the market, RateCity has found.
"While so many of us rely on our credit cards, we shouldn't forget that cards actually cost money to own and use," RateCity CEO Damian Smith said.
Of the almost 300 personal credit cards monitored by RateCity, 90 percent have annual fees with some as high as $700 per year. The average credit card annual fee is $97, according RateCity figures.
Flick fees and save
For some credit card users, choosing a credit card with an annual fee is a waste of money because they aren't benefiting from a lower interest rate.
"There's a misconception out there that if you pay an annual fee on your credit card you will be getting a better interest rate than a card with no annual fee. We've found this is not always the case," Smith said.
The average purchase interest rate for credit cards with an annual fee is 17.58 percent. While the average rate for cards with no annual fee is just 16.40 percent.
One of the top fee-free credit card rates available through RateCity is Heritage Building Society's Visa Classic No Frills card with an interest rate of 11.80 percent.
Another fee-free card with a rate less than 16.40 percent is Horizon Credit Union's Visa Credit Card at 12.95 percent.
"The best advice on credit cards is that you should always pay off your balance in full every month. If you're not able to do this then you need to look not only at the annual fee but also at the underlying interest rate as well," Smith said.
Beware hidden costs
While the Heritage Building Society card offers a competitively low interest rate and no annual fees, there is a hidden trap - the card offers no interest-free days, which means you're paying interest from the moment you make the purchase.
By comparison, Horizon Credit Union offers 45 days interest-free to its no-fee Visa Credit Card holders.
Clearly, it pays to compare more than simply a credit card's fees and interest rates, because sometimes the real savings can be discovered in the fine print. So make sure you understand your spending and repayment habits before you sign up for a no annual fee credit card, because the way you use and repay your credit card will dictate the right card for you.
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