Reserve Bank of Australia (RBA) governor, Dr Philip Lowe, has expressed his “frustration” with credit cards charging interest rates upwards of 20 per cent, and encouraged Australians to shop around for better rates to send a message to card providers.
Speaking to the Standing Committee on Economics, Dr Lowe’s comments came as a response to questions around the nation’s low cash rate not flowing through to credit card products, like it has for home loans, savings accounts and term deposits.
Dr Lowe drew attention to the credit cards on the Australian marketplace offering interest rates as low as the high single digits, and encouraged cardholders to search for better deals:
“So I say to people: if you've got a credit card with a high interest rate and you don't like it, go and find another one, because there are ones out there, and if, collectively, we, as Australians, do move to the better products, the banks will have to withdraw the bad ones—the bad, high-interest-rate ones.”
As an example of consumer behaviour sending a message to financial product providers, Dr Lowe cited the home loan market. He said that over the past six months, the average mortgage rate paid by Australians has declined, even though some of the posted rates haven’t changed, because people are moving to banks that offer them a better rate.
Dr Lowe also added that Australians are reportedly managing their credit card debts, with the value of outstanding credit card debt falling a lot over the past year, and credit card arrears rates declining.
“People are working out that there are better ways to pay for things. Often people pay with their debit card and they don't want to carry the high interest on a credit card. So the system is responding, and people are paying down credit card debt, which is good.”
Remember to compare credit card options before making any changes, keeping in mind that a credit card’s interest rate is just one factor in the overall value it may offer. If you’re unsure if switching credit cards is right for you, consider seeking personal financial advice.