Australians with credit cards have been slugged $842 million in extra interest since October 2011 as most card providers fail to pass on Reserve Bank-led rate cuts, research shows.
While the Reserve Bank of Australia (RBA) has slashed the cash rate by 1.75 percentage points since November 2011, Australian credit card rates have remained largely unchanged.
RateCity research shows that the average credit card interest rate in October 2011 was 17.28 percent. It’s now 17.21 percent – almost six times the RBA’s official cash rate.
“For the average Australian with the average outstanding credit card balance accruing interest of $2359, they’ve paid an extra $55 interest in the past 16 months as a result of providers not passing on cuts,” she said.
“That might not sound like much, but it’s worth over $842 million across all credit cards.”
Institutions claim that credit cards aren’t like other lending products; that they’re not driven by changes in RBA interest rates, she said. Yet, when the RBA lifted the cash rate by 0.25 percentage points in November 2010 providers of nearly half of the credit cards in RateCity’s database had passed on this increase in full within three weeks.
“Consumers have a right to be confused – and even a little cranky – when institutions don’t move rates down in line with the RBA, but do move them up in line with cash rate movements.”
Given the trend, cardholders could be forgiven for thinking that there is nothing that they can do, but all of us can take some responsibility, said Hutchison.
“Right now credit card rates range from 9.5 percent to 22.99 percent, and there are 94 cards in RateCity’s database with rates below the average rate of 17.21 percent – in other words, there’s no shortage of alternatives if you want a card with a lower rate,” she said.
Paying the minimum payment each month isn’t enough, she added.
“Credit card debt is just as much of a debt as a mortgage and it can be a lot more expensive. So the simplest way to avoid paying lots of interest is to use your interest-free period and pay your card off in full,” she said.