Credit card holders pay an extra $281 in excess interest
If you're feeling a little underwhelmed by the high credit card interest rates despite the record low Reserve Bank cash rate, you have every right to be.
"The fact is an average credit card holder has paid an extra $281 because of unnecessarily high interest rates. Worryingly, this comes at a time when one-in-five Australians are living off their credit card to get through to payday," says CHOICE campaigns manager Erin Turner.
The data, released by consumer advocacy group CHOICE and financial comparison site Mozo reveals had credit card interest rates moved in line with the official cash rate over the last four years, Australian consumers would have saved $2.07 billion in interest payments.
After analysing 55 major card providers from November 2011 to May 2015, CHOICE and Mozo found only 16% of credit card providers moved interest rates in the month after a drop in the official cash rate.
"We know the average credit card interest rate in June 2011 was 17.41% but instead of falling in-line with the cash rate it rose by 0.2% over the last four years to 17.61% by May 31 this year. We have also seen the average credit card annual fee rise from $94 in late 2011 to $115 in May 2015. Clearly consumers are getting a raw deal." says Kirsty Lamont, Mozo director.
Another key finding from the report was the average credit card annual fee increase from $94 to $115 from late 2011 to May 2015.
A detailed report on these findings will be submitted by CHOICE to an upcoming Senate Economics References Committee for an inquiry into matters relating to credit card interest rates.
Consumers can use CHOICE'S 'Compare, ditch and switch' tool powered by Mozo to find low rate credit cards but Lamont also suggests the following tips:
- Look beyond intro rates and choose a card with a low, ongoing purchase rate.
- Stop paying an annual fee for the privilege of owning a credit card, choose a no fee card.
- Shop around and look beyond the big banks, as the cheapest cards are often from credit unions and mutuals
- Pay your bill on time each month to avoid getting bitten by interest altogether
- Re-evaluate your credit card every six months to make sure you're still getting a good deal