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Don't bank on the big four

CHOICE says the big four banks are punishing consumers with astronomically high credit card interest rates

1 June 2015

Consumer advocacy group CHOICE is encouraging consumers to shake off the "lazy tax" and switch out of credit card products offered by the big four banks to get a better interest rate through credit unions and smaller lenders. 

The call comes as Senators seek answers today from the Reserve Bank as to why there's such a big gap between the official cash rate, currently at a historic low of 2%, and credit card interest rates which can be well over 20%. 

"The big banks are punishing their credit card customers with crippling rates of interest and with official rates at record lows we deserve to know why the banks are failing to pass on savings," says CHOICE spokesperson Tom Godfrey. 

"A credit card is often viewed as essential and we know that Australians rely on their credit cards to get by. In March this year our Consumer Pulse survey found that 1 in 5 people lived off a credit card to cover the gap until pay day."[1]

 
The CHOICE survey also found that 46% of people were worried about their level of debt, including mortgage and credit card debt.[2] 

"We also know most people are paying over $700 in interest each year but consumers can save today by switching to a card with a better interest rate."[3]  

CHOICE has had long standing concerns that credit cards are overly complex and designed to distract consumers from very high interest rates by putting a focus on rewards schemes, interest-free periods, balance transfers and 'low' annual fees.

"Consumers can save today by switching to a better card. Some platinum and high rewards cards charge over 20% interest but even the big banks' low interest cards have astronomically high rates compared to smaller lenders and credit unions," says Mr Godfrey.

CHOICE has compared the big bank low rate credit cards to the best rates in the market according to Mozo. 

"There is a 4.5% difference between the rate charged by most banks for a "low rate" card and the best rate we found in the market today. This tells us that no one should be using a credit card from a major bank unless they pay the balance in full every month," says Mr Godfrey.

"Until the GFC, there was at least a rough correlation between the cash rate and credit card interest rates. This seems to have changed in the last few years. Low rate and standard card rates have remained relatively static while the cash rate has hit record lows. We can only assume that the big banks are pocketing the savings."

Low Rate credit cards compared – big players

Lender

Card

Interest rate (1 June 2015)

American Express

Low Rate Credit Card

11.99%

ANZ

Low Rate Credit Card

13.49%

Commonwealth Bank

Low Rate Credit Card

13.49%

NAB

Low Rate Credit Card

13.49%

St. George

Vertigo Credit Card

13.24%

Westpac

Low Rate Credit Card

13.49%

 

Low rate credit cards compared – best rates in the market 

Lender

Card

Interest rate (1 June 2015)

Community First Credit Union

McGrath Pink Visa

8.99%

bankmecu

Low Rate Visa

9.89%

ME

Frank Credit Card

9.99%

Victoria Teachers Mutual Bank

Visa Platinum Credit Card

9.99%

G&C Mutual Bank

Low Rate Credit Card

9.99%

[1]The survey was designed and analysed by CHOICE with fieldwork by GMI/Lightspeed Research conducted with 1,049 consumers aged 18-75 years between 17 and 24 March 2015. Final data has been weighted to ensure it is representative of the Australian population based on the ABS Census 2011. The March 2015 CHOICE Consumer Pulse survey found that 21% of Australians lived off a credit card to cover the gap until pay day. 46% of people were worried about their level of debt, including mortgage and credit card. 

[2]Ibid.

[3]The ASIC MoneySmart credit card debt clock shows that the average Australian has a credit card debt of $4,113 and is paying over $740 in interest each year. Debt clock as at 11.30am on 1 June 2015, see https://www.moneysmart.gov.au/borrowing-and-credit/credit-cards/credit-card-debt-clock

Click here for information on how to choose the right credit card or here to compare, ditch and switch to a better credit card.

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