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Which credit card for you?

Financial institutions are using unfair practices to squeeze every last cent of interest from customers.
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01 .Stings in the tail


Most CHOICE members pay their credit card bill on time and in full each month, avoiding interest and fees. From time to time, many of us slip up. Who hasn’t at one time forgotten to clear their bill by the due date, or misread a statement and paid the wrong amount?

It’s for these simple mistakes consumers with impeccable repayment records are being slugged with penalty interest. It’s not just a card’s interest rate that determines what you’ll pay; the amount you’re charged depends on when your card provider starts and stops charging interest and how fairly they apply interest-free periods. You could have two cards with exactly the same interest rate and use them in exactly the same way, yet one may end up charging twice as much interest as the other if you pay late. In fact, depending on your spending and repayment patterns, the difference could be much greater – as this report's case study explains.

CHOICE surveyed more than 20 credit card providers to find out how they apply interest when customers occasionally pay late or not in full. All the big guns provided information and calculations, as well as some smaller financial institutions. For those who always pay their bill on time, or for cardholders who are struggling with a recurring debt, see Picking the best card for our recommendations.

Credit card providers tested

  • Australian Central Credit Union
  • American Express
  • ANZ
  • Bank of Queensland
  • Bankwest
  • Bendigo Bank
  • Citibank
  • Commonwealth Bank
  • CUA
  • GE Money (Myer Visa and Low Rate MasterCard)
  • Heritage Building Society
  • HSBC Australia
  • IMB
  • Macquarie Bank
  • Members Equity
  • NAB
  • Savings & Loans Credit Union
  • St George Bank
  • Suncorp Metway
  • Teachers Credit Union
  • Westpac

Disputing unfair penalty interest

CHOICE member RohanCHOICE member Rohan recently fell victim to ANZ’s interest sting. He pays his credit card bill on time almost without fail each month, and so was surprised to see a $63 interest charge appear.

"I always pay my credit card in advance and never wait for the last day of payment,” Rohan told CHOICE. “In April I purchased an airline ticket for $6500 and had some other transactions on my credit card. The same week I transferred $7000 to the card and thought no more of it. When the statement arrived I was charged $63.60 in interest.

“I phoned the bank instantly and was told there was $29 I had not paid by the due date. While I still don’t understand where this $29 figure came from, my first question was, how could I be charged $63 in interest for a mere sum of $29? I was told very politely that the bank does not only charge interest on the overdue amount, but for the whole month's transactions. It didn’t matter at all that I’d paid $7000 in advance.”

Believing this was daylight robbery, Rohan told the bank he'd be contacting the Banking and Financial Services Ombudsman. The customer service representative immediately looked into his excellent repayment record and agreed to reverse the charges. "I cannot understand how the large banks are allowed to get away with this. No wonder so many people are in financial strife."

An ANZ spokeswoman said “to avoid interest charges on credit card purchases, customers must pay the full amount owing before the interest free period expires. But ANZ works with customers to educate them about how interest is accrued on credit card purchases. So, as a gesture of goodwill, we often reverse the first lot of interest charged.”

Members respond

We asked CHOICE members to tell us their experience and feelings about banks backdating interest. Here are some of your responses.

"We had paid what we thought was the full amount. For some strange reason, our payment was just slightly short and we were charged interest on the full amount. We ALWAYS pay off our card each month prior to the due date so as not to accrue any interest. We were shocked that we would be charged on the full amount for that month (in the thousands of dollars). Of course, there was nothing we could do - those were the rules." - Janet.

"After years of paying our credit card in full every month, we payed it three days late due to an oversight. NAB charged us $69.93 in interest - interest on all the purchases made that month plus each one made after the close of that month too. Never made that mistake again!" - Daniel.

My husband and I have had a Mastercard for a number of years and have always paid the full amount off every month. Unfortunately last month, due to an oversight, we were 3 days late in paying our December account of $4073.13 and were slugged a total of $147 interest for those 3 days! I rang to enquire as to why we'd been charged so much, to be told that we were charged interest for the overdue month's amount, plus interest on the current monthly amount as well, which had taken our overall account to $11,168.28. An expensive oversight! - Jill.

During one month, I have a credit card bill of $2300 roughly. I paid $2000 on time, then $300 just several days later. They charged me interests on the entire amount of $2300 instead of the overdue amount of $300. Grossly unfair. - Kelvin.

"The Banks need to be exposed for the greed and willingness to blatantly rob money from their customers. Let's make no mistake about this. After your 'Interest free period' expires on your Credit Card account, you get hit with interest for your 'Interest free period' ... there's your penalty, and then interest for every day after that ...why do the Banks need to charge a Late Fee??? They should be sending a Thank you note to customers who did not pay in time. And that's their 'Double Dipping Fee' ... they call it a 'Late Fee'.' - Mauro. 

Your say - Choice voice

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