Mind the gap on credit card rates
Do the sums … some card users face higher fees. Photo: Mayu Kanamori
CREDIT card holders hurting from a festive spending spree are being penalised by banks who have not passed on this month's rate cut in full. They are urged to switch to cards with more competitive rates.
Predicted spending figures for NSW in the peak sales period from Boxing Day to mid-January, compiled by the Australian National Retailers Association, show that online sales rose by 26 per cent from the same period last year, to almost $1 billion.
The state figure for sales at bricks-and-mortar stores are expected to be much higher, at about $3.7 billion, but it is still in the doldrums, slipping by about 1.3 per cent on last year.
The banks will make almost another $90 million on the credit card balances accruing interest in 2013 by not passing on all of the latest cut of 25 basis points, an online card comparison firm calculates.
''There is approximately a 16 per cent gap between the standard credit card interest rate and the current 3 per cent cash rate, an increase of a whole 2 per cent from the 14 per cent gap that existed in late 2008,'' the publisher of CreditCardFinder.com.au, Jeremy Cabral, said.
''There is definitely room for the banks to lower their credit card interest rates. They have done it before and can do it again.''
A spokeswoman for another financial comparison website, RateCity, said that since November 2011 the Reserve Bank had lowered the cash rate by 1.75 per cent while credit card purchase rates had fallen by an average of 0.25 per cent.
''If people switched to the lowest rates possible that would definitely increase competition, but the problem is there are not enough consumers out there switching,'' Michelle Hutchison said.
The festive spending hangover is usually accompanied by heightened advertising for credit cards, offering seductive rates to induce borrowers to switch cards but several have punitive rates. Some are as high as 22 per cent once the honeymoon period expires.
The Commonwealth Bank said that credit card interest rates were not linked to the official cash rate and, as an unsecured form of credit, were priced based on risk. It said that more than 60 per cent of its customers did not pay any interest, because they cleared the balance each month.