How capping credit card interest rates could save Australians $1.53 billion a year

Australia’s credit card debt has risen to a total of $20.03 billion dollars, according to new RBA statistics out today.

In February, $18.4 million dollars was added to debt accruing interest, a 0.1 per cent rise from the month before in original terms.

It comes as there are growing calls for the federal government to regulate credit card interest rates so there’s a maximum margin with the RBA cash rate, which is 0.10 per cent.

By comparison, the average credit card interest rate is currently 17.3 per cent, according to the RBA.

Analysis by RateCity.com.au shows if the average credit card rate was 10 per cent instead, Australia’s interest bill for the month of February would have been $122 million less.

Over the last year the interest bill would have been slashed by $1.53 billion dollars.

Australia’s credit card debt: Impact of lower interest rates

Source: RateCity.com.au.

Note: Calculations based on the average RBA credit card rates from March 2020 to Feb 2021, and the debt accruing interest each month.

Credit card debt up in February – but down year-on-year

While debt accruing interest rose month-on-month, compared to February last year, the country’s overall credit bill dropped by $7.17 billion.

There are also 1.05 million fewer credit card accounts compared to a year ago - an 8 per cent drop.

Credit card statistics: monthly and year-on-year changes

Source: RBA, released 7 April 2021, original data, excludes commercial cards.

RateCity.com.au research director, Sally Tindall, said: “It’s appalling to see some credit card companies still charging customers over 20 per cent interest, when the cash rate is 0.10 per cent.

“If you’re paying a double-digit interest rate on your credit card every month you’re being fleeced,” she said.

“If some credit card companies continue to hoodwink customers into paying exorbitant rates, perhaps more regulation is needed to better protect people.

“Credit card debt is riskier debt, so it’s appropriate for banks to charge higher interest rates than they would for a home loan. However, in this current market it’s impossible to justify rates over 20 per cent.

“While some credit cards rates are still stubbornly high, it’s encouraging to see the list cards with rates under 10 per cent growing,” she said.

Analysis of the RateCity.com.au database shows there are 19 providers offering credit cards with rates under 10 per cent, the highest on our records.

“Even the big players like CBA, Westpac and American Express have low rate, fee options on the table.

“While the number of credit card accounts continues to tumble, the slight rise in debt accruing interest is a troubling sign that some Australians are slipping back into bad habits,” she said.

Credit Cards on RateCity.com.au with interest rates under 10%

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