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Banks roll $6 billion on plastic


Laine Gordon

By Laine Gordon

2 min read

Thousands of Australians saddled with credit card debt are “throwing money away”, according to new research, which shows that credit card providers are making over $6 billion per year in credit card interest alone, despite the cash rate dropping.   

RateCity research has revealed that credit card providers are taking advantage of Australia’s credit card debt by not passing on any of the Reserve Bank’s rate cuts. The average credit card provider charges customers four times the official cash rate with the average purchase rate sitting at 17.16 percent (at the time of writing). The cash rate in March remained steady at 4.25 percent.

Damian Smith, chief executive of RateCity, said nation’s credit card bill is not surprising given that most purchase rates on credit cards have dropped rates in line with reductions in the cash rate.

“We certainly accept the logic that credit cards will have much higher interest rates than the Reserve Bank’s cash rate because they are unsecured loans and therefore have more risk of default. But we can’t see any reason why they are charging higher margins above the cash rate compared to the peak of the global financial crisis. There’s no link between any rising funding costs for banks and what they charge as credit card interest rates,” he said.

Of more than 200 personal credit cards in the RateCity database, 90 percent of cards have kept their purchase rate steady since October 2011, despite rates cuts in November and December last year which brought the cash rate down by 50 basis points from 4.75 percent.

In that time, nine cards dropped their purchase rates with four passing on the full 50 basis point cuts, while nine cards lifted rates by up to 100 basis points.

“In mid-2008, when major banks were charging almost 10 percent for standard variable home loan rates, the average credit card purchase rate was 16.58 percent, which was 9.33 percentage points higher than the cash rate. Now, the difference has grown to 12.91 percent points higher than the cash rate,” said Smith.

Cardholders could slash their interest bill dramatically by switching to one of the 93 lower rate cards charging below the average of 17.2 percent, said Smith.

“Cardholders have the power to drive rates down by switching to lower priced cards.”

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