Can RBA rate cuts slash your credit card bill?

If your home loan rate has come down after RBA’s October rate cut, you wouldn’t be blamed for thinking your credit card interest rate should reflect the same cut.

But this doesn’t happen for most credit card holders. According to RateCity data, the average credit card purchase rate in October 2019 is 16.68 per cent. The RBA slashed the official cash rate to a record low of 0.75 per cent in the same month.

Only two lenders announced they would reduce rates on their credit card products after the RBA’s October decision: Auswide Bank and Heritage Bank, according to the RateCity database. Both passed on (or will soon pass on) the full 0.25 per cent cut to their credit card customers.

And in the entire 2019, where the RBA dropped the rate three times, as few as three credit card providers brought down their rate in response to the RBA’s decision, including Auswide, Heritage and P&N Bank.

Auswide passed on the 0.25 per cent cut in full following the June, July and October cuts, but it’s worth noting the interest rate of Auswide’s credit card product follows the movements of the RBA cash rate and only changes its rate when the RBA moves.

Variable rates mean you can take advantage of a low-rate environment but if rates increase, you may be hit with a bigger credit card bill.

Heritage also passed the full rate cut for July and October, while P&N lowered their rates for credit cards by 0.18 per cent in June.

So why don’t more credit card providers pass on rate cuts?

One reason commonly cited by banks is that, unlike mortgages and car loans, credit cards are a form of unsecured credit and hold a higher risk for the lender.

This is also why borrowers of secured loans can access lower interest rates, as they’re guaranteeing the loan with their property or car. So, by providing the asset as security, a borrower is effectively allowing the lender to seize the asset to repay the debt owed if they default on the loan.

As credit card holders don’t have any collateral pledged, many Australians keep themselves in debt, putting off debt repayments or paying back the minimum monthly amount.

According to an Australian Securities & Investments Commission review of credit cards in 2017, debt is a problem for 18.5 per cent of Aussies who use the plastic money.

And 1.7 per cent of consumers were in “severe delinquency” on at least one card. This basically means their account has been written off as they have repeatedly failed to make repayments and the credit card company believes there is little chance for them to recover the debt.

Credit cards with the lowest purchase rates

One of the easiest ways to get a rate cut following an RBA cash rate cut, is to give yourself one.

If you’re thinking of getting a credit card, or switching to a lower rate product, the ongoing purchase rate is going to be one of the key factors to look at when comparing options. We’ve compiled a list of products with the lowest purchase rates on the RateCity database, but keep in mind there could be other credit card features you might be seeking.

Credit card

Purchase rate

G&C Mutual Bank - Low Rate Visa Credit Card

7.49%

Auswide Bank - Low Rate Visa Card

8.7%

Easy Street Financial Services - Easy Low Rate Visa Credit Card

8.99%

Community First Credit Union - Low Rate Credit Card

8.99%

Northern Inland CU - Low Rate Visa Credit Card

8.99%

MOVE Bank - Low Rate Credit Card

8.99%

Bank Australia - Low Rate Visa Credit Card

9.39%

Bank First - Visa Platinum Credit Card

9.84%

Note: Data accurate as of October 9, 2019

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Learn more about credit cards

Which credit card has the highest annual percentage rate?

The credit card market changes all the time, so the credit card with the highest annual percentage rate is also liable to change.

Keep in mind that credit card interest rates are expressed as a yearly rate, or annual percentage rate (APR). A low APR is generally good but also consider:

  • There can be different APR's for each feature of the card (e.g. purchases may have an APR of 14 per cent, while cash advances on same card could have an APR of 17 per cent.
  • Credit cards with a variable rate can change throughout the year, affecting your APR, so check the full details.
  • If you pay your balance in full every month, having the lowest APR is not as important as the other fees associated with the card. However, if you carry a balance from month to month, then you want the lowest APR possible.

Can a pensioner get a credit card?

It is possible to get a credit card as a pensioner. There are some factors to keep in mind, including:

  • Annual income. Look for credit cards with minimum annual income requirements you can meet. 
  • Annual fees. If high fees are a concern for you, opt for a card with a low or $0 annual fee. 
  • Interest rate. Make sure you won’t have any nasty surprises on your credit card bill. Compare cards with a low interest rates to minimise risk.

Should I get a credit card?

Once you've compared credit card interest rates and deals and found the right card for you, the actual process of getting a credit card is quite straightforward. You can apply for a credit card online, over the phone or in person at a bank branch. 

What should you do when you lose your credit card?

Losing your credit card is a serious situation, and could land you in financial trouble. Here is a simple guide detailing what to do when you lose your credit card.

Lock you card – Contact your provider and inform them about your lost credit card. From here lock, block or cancel your card.

Keep track of transactions – Look out for unauthorised credit card transactions. Most banks protect against fraudulent transactions.

Address recurring charges – If your card is linked to recurring charges (gym membership, rent, utilities), contact those businesses.

Check credit rate – To ensure you’re not the victim of identity theft, check your credit rating a month or two after you lose your credit card.

Current Interest Rate

This is the current interest rate on your existing credit card.

What should you do if your credit card is compromised?

Credit card fraud is a serious problem. If your credit card is compromised and you’re wondering what to do, here are a few precautionary steps to take.

Contact you credit provider – Get in touch will your credit card provider. If you feel your card has been compromised, you should be able to lock or block it.

Monitor your accounts – Keep an eye on your credit card accounts. Any unauthorised transactions could be a sign your credit card has been compromised.

Check your credit rating – It’s also important to check your credit rating, to ensure you’re not a victim of identity theft or some other financial mischief.

What is a balance transfer credit card?

A balance transfer credit card lets you transfer your debt balance from one credit card to another. A balance transfer credit card generally has a 0 per cent interest rate for a set period of time. When you roll your debt balance over to a new credit card, you’ll be able to take advantage of the interest-free period to pay your credit card debt off faster without accruing additional interest charges. If your application is approved, the provider will pay out your old credit card and transfer your debt balance over to the new card. 

How easy is it to get a credit card?

For most Australians, there are no great barriers to applying for and getting approved for a credit card. Here are some points that a lender will consider when assessing your credit card application.

Credit score: A bad credit score is not the be all and end all of your application, but it may stop you being approved for a higher credit limit. If your credit score is less than perfect, apply for the credit limit that you need, rather than the one you want.

Annual income: Most credit cards have minimum annual income requirements. Make sure you’re applying for a card where you meet the minimum.

Age & residency: You need to be at least 18 years old to apply for a credit card in Australia, and most require that you are an Australian citizen or permanent resident. However, there are some credit cards available to temporary residents.

How do you use credit cards?

A credit card can be an easy way to make purchases online, in person or over the phone. When used properly, a credit card can even help you manage your cash flow. But before applying for a credit card, it’s good to know how they work. A credit card is essentially a personal line of credit which lets you buy things and pay for them later. As a card holder, you’ll be given a credit limit and (potentially) charged interest on the money the bank lends you. At the end of each billing period, the bank will send you a statement which shows your outstanding balance and the minimum amount you need to pay back. If you don’t pay back the full balance amount, the bank will begin charging you interest.

How do you apply for a credit card?

You can apply for a credit card online, over the phone or in person at the bank. Once you’ve compared the current credit card offers, the application process is quick and easy. Before you get your application started, you’ll need to gather your personal information like proof of ID, payslips and bank statements, proof of employment and details of your income, assets and liabilities. To be eligible for a credit card, you’ll need to be an Australian citizen over 18 and earn a minimum of $15,000 each year. Once you’ve applied for a credit card, you should get a response fairly instantly. If your credit card application has been approved, you should receive a welcome pack with your new credit card within 10-15 days.

How to get a credit card for the first time

A credit card can be a useful financial tool, provided you understand the risks and can meet repayment obligations.

If you’re a credit card first-timer, review your options. Think about what kind of credit card would suit your lifestyle, and compare providers by fees, perks and repayments.

Once you’ve selected a card, it’s time to apply. Credit card applications can generally be completed in store, online or over the phone.

When you apply for a credit card for the first time, you must meet age, residency and income requirements. As proof, you must also provide documentation such as bank account statements.

How to calculate credit card interest

Credit card interest can quickly turn a manageable balance into unmovable debt. So being able to understand how interest rates translate into dollars is an important skill to acquire.

The common mistake people make is focusing on the credit card’s annual percentage rate (APR), which often sits between 15 and 20 per cent. While the APR does provide a rough idea of how much interest you’ll pay, it’s not entirely accurate.

This is because you actually accrue interest on your balance daily, not annually. So, you need to work out your daily periodic rate (DPR). To do this, divide your card’s APR by the number of days in a year (e.g. 16.9 per cent divided by 365, or 0.05 per cent). You can then apply this figure to the daily balance on your credit card.

How to pay a credit card

There are a few ways to pay a credit card bill. These include:

  • BPAY - allows you to safely make credit card payments online.
  • Direct debits - set up an automatic payment from your bank account to pay your credit card bill each month. You can choose how much you want to pay of your credit card bill when you set up the auto payments.
  • In a branch.
  • Via your credit card provider's app.

How do you use a credit card?

Credit cards are a quick and convenient way to pay for items in store, online or over the phone. You can use a credit card as a cashless way to pay for goods or services, both locally and overseas. You can also use a credit card to make a cash advance, which gives you the flexibility to withdraw cash from your credit card account. Because a credit card uses the bank’s funds instead of your own, you will be charged interest on the money you spend – unless you pay off the entire debt within the interest-free period. If you pay the minimum monthly repayment, you will be charged interest. There are many different credit card options on the market, all offering different interest rates and reward options.