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Cash Advance Crash Course

By Rebeccah Elley 28 February 2012 2:11pmAnswers, Credit cards, Interest ratesTag: > > >

The Mozo Answers forum has been buzzing recently with questions about credit card cash advance rates. Such as “what is a credit card cash advance rate?” and “are cash advances a good idea?”

Trying to decipher all the mumbo jumbo that credit card providers use can give anyone a headache. So lets keep things simple, with a quick rundown on credit card cash advances:

What is a cash advance? A cash advance is a feature on a credit card which allows you to withdraw cash from an ATM or over the counter at a bank. It’s designed to help you make ends meet for a short period of time. We emphasise short!

Why would I need to use a cash advance? A credit card cash advance may be necessary in certain situations. You may need to pay for something in cash and your paycheck may be late or there has been an emergency while you’re overseas and you need cash fast. The reasons are endless…but make sure you can pay it all back – fast!

Why-oh-why is the interest rate so high? Ever heard the saying “there’s no such thing as a free lunch?” Well this is certainly the case with cash advance rates, as the convenience of instant cash comes with the whiplash of a high cash advance rate. Using our credit card comparison tool we found that of the 181 credit cards in our database only 20 offer cash advance rates under 15%. The lowest cash advance rate is offered by Community First McGrath Pink Visa at 9.99%, while the highest is GE Money GO MasterCard with a jaw droppingly high cash advance rate at 29.49%.

Is it a good idea to use cash advances? In most cases it is definitely NOT a good idea. As easy as it is to simply go to the ATM and withdraw cash from your credit card, the high interest rate is just not worth it. Only use the credit card cash advance feature if you know you have the option to pay your balance in full.

5 cash advance catches to watch out for:

1. There’s cash, then there’s cash! You may be surprised to learn that credit card cash advance rates don’t just apply to instant cash withdrawals from an ATM or branch. Other ‘cash’ payments like money orders, lottery tickets, any gambling money withdrawals and traveller’s checks may be considered a form of cash advance by your credit card provider. Be careful or you could be slapped with the high interest rate without knowing it.

2. Hidden fees: Most credit cards will have fees attached to cash advances on top of the high interest rate. This may be a percentage of the amount you are withdrawing of around 2% or a flat fee ranging from $1.25-$5 per advance.

3. No interest free days: You might be thinking, “but my credit card has 44 interest free days.” Unfortunately this usually doesn’t include credit card cash advances, which means you’ll be accumulating the high cash advance interest rate straight away. And that will hurt when your bill comes.

4. Cash advances are paid last: To make matters worse, most credit card providers require you to pay off the full balance amount due on the credit card before you pay off the cash advance interest. So you’ll be stuck accumulating that high interest until you’ve paid off everything else.

5. Low interest credit cards with high cash advance rates: Low interest credit cards are great for your everyday purchases, however don’t get the standard interest rate confused with the cash advance rate. While the standard interest rate may be as low as 10%, cash advance rates will usually be much higher, some can be as high as 22% on a low interest credit card.

It’s not all bad…Using our credit card comparison tool we’ve picked out a few low interest credit cards that also have low cash advance rates. And here are the stand-outs:

Credit Card Standard purchase rate Cash Advance Rate Cash Advance fee
Community First McGrath Pink Visa 9.99% 9.99% $5
Bankmecu low rate 10.74% 10.74% $3.50
ME Bank MasterCard 12.25% 12.25% $1.25

Stay tuned Mozonians! From the 1st of July 2012 the Australian Government is bringing in new credit card reforms to increase competition amongst financial providers. One of the reforms makes it mandatory for all credit card providers to direct credit card repayments to the highest debt first. So if you end up needing a credit card cash advance you’ll be able to attack that high cash advance debt first.

NAB is leading the way with this reform, as all NAB credit cards already pay off the highest interest first.

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Banks Play Follow The Leader

By Peter Marshall 15 February 2012 4:44pmHome loans, Interest rates, RBA, Savings accounts, Term depositsTag: > > >

Mozo Rate Chaser mid-month update – February 2012

The Mozo Rate Chasers breathed a sigh of relief when the RBA announced that it wouldn’t move the official cash rate at its February meeting, thinking that we would have a fairly unexciting month of crossing the t’s and dotting the i’s of all the products we cover. We couldn’t have been more wrong with ten lenders having announced rate increases at the time of writing.

The big 4 are certainly living up to their bad reputations with all of them increasing variable home loan rates outside the usual RBA rate changes, citing the pressures of increased funding costs. Just don’t mention that they are all also in the middle of reporting record mid-year profits!

Bank………. Old Rate….. New Rate….. Increase….. Cost…..
ANZ 7.30% 7.36% 0.06% +$144
Westpac 7.36% 7.46% 0.10% +$228
CBA 7.31% 7.41% 0.10% +$228
NAB 7.22% 7.31% 0.09% +$204

*Based on $300,000 loan balance repaid over 25 years

While some other lenders are playing follow the leader, (such as Bankwest, Bendigo, Greater Building Society, St George) and bumping up their rates, there are still plenty who haven’t. The best in the market currently is My Mortgage Freedom’s 6.10% variable rate and there are a range of lenders around the 6.2% mark.

Compared with the average big 4 standard variable rate, a borrower could reduce their repayments by up to $244 per month and save almost $73,000 over the life of a 25 year $300,000 loan by switching to the cheapest rate. Even compared with the big banks’ relatively attractive package rates, the same loan could save $117 per month and almost $35,000 over the life of the loan.

To see the best rates around, check out our home loan comparison tool, or use our health check tool to see how much you could save by changing your current loan to a different lender.

Savings versus Home loan rates

The Australian Bankers’ Association said in a recent media release that around 60% of the money that local banks lend to consumers comes from bank deposits. We’ve compared what the banks have done with their prime savings accounts compared to their home loan rates since the RBA started moving the cash rate back in November last year.

ANZ is giving people with savings the best deal, both in terms of having the best rate on the market at 5.76%, down only 0.25% when they have cut their mortgage rates by 0.44% over the same period. NAB gets a commendable mention for only reducing their savings rate 0.3% when they have cut their home loan rates a total of 0.36%. They couldn’t afford to take too much off their savings rate though as it is the worst of the big 4 at only 4.46%.

CBA and Westpac have both slashed deposit rates more than their home loan rates which will deliver a nice little boost to their bottom lines. Both have reduced their home loan rates a total of 0.4% but their deposit customers are earning 0.5% less interest on their savings, now receiving 5.50%.

The savings account rates quoted here are the best ongoing rates from each bank, although they all have deposit and/or withdrawal conditions that must be met each month to earn the top rate.

Tell us your reaction to the Big 4 banks all raising their rates for your chance to win a $50 ColesMyer voucher >>

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The High Price of Student Vice

By Shaun Leung 09 February 2012 1:22pmInfographic, personal finance, Student financeTag: > > > >

Booze, burritos and big nights out. Student life is full of vices but can your wallet handle the squeeze? A little sacrifice could lead to BIG rewards… check out our slick infographic to see how!

 

Student vices

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Mozo Rate Chasers Round-Up – January

By Peter Marshall 07 February 2012 10:59amCredit cards, Home loans, Mozo, Personal loans, Savings accountsTag: >

This is a round-up of rates in January and some may have changed since the time of writing. To check on today’s rate, click on the highlighted product

Home Loans:

There wasn’t much movement in home loan rates in January which was expected after all the activity responding to the two rate cuts last year.  Instead we saw some trimming of variable rates and jockeying for the title of lowest fixed rates.

Most of the variable rate action occurred in package rates rather than standard variable offerings. Non-bank lender Better Option joined the bunch of lenders matching UBank’s UHome Loan 6.14% rate, but new kid on the block, My Mortgage Freedom, retained the cheapest variable rate at 6.10%.

Previous market leader Greater Building Society increased its 1 year fixed package rate from 5.69% to 5.84%, leaving the best fixed rates for loans of $300,000 to Better Option, Newcastle Permanent and Reduce Home Loans – all at 5.79%.

Personal Loans:

Finally some movement in Personal Loan rates as the RBA cuts slowly start to flow through. Westpac seems intent on becoming more competitive in the personal loan space, cutting rates across its personal loan products.  The Westpac Personal Flexi Loan rate was slashed by 1.70% to 12.99% and its Unsecured Fixed rate was cut to 13.99%.

This still leaves them some way off the pace compared with other lenders though with a range of options near or below 13.0%. For example, Newcastle Permanent cut their Unsecured Fixed rate from 12.99% to 12.74%.

Credit Cards:

All of the competition in Credit Cards seems to be focused on low rate cards while customers with rewards credit cards have seen precious little of the RBA cuts.

Community First’s McGrath Pink Visa card is the only card on our site with a rate under 10% after they passed on both of last year’s RBA cuts. The card was at 10.49% but is now down at 9.99%. Of the major banks, NAB’s cut of 0.25% taking its Low Rate card to 13.24% is the only change we’ve seen. In the Rewards category Jetstar’s Mastercard rate was cut from 13.99% to 13.49%, although the rate reflects the card’s much lower earn rate than most cards with rewards.

Savings Accounts:

The biggest move in Savings Accounts during January was RaboDirect’s decision to return to offering an introductory rate. The RaboDirect High Interest Savings now pays 6.01% for the first four months, dropping back to 5.4% after that.  UBank headed in the opposite direction, shaving 0.1% off its headline rate to 6.01% (deposit conditions apply).

Overall we’ve had two cash rate cuts in the last 12 months totaling 50 basis points, yet the average rate on savings accounts has come down only 36 basis points, so there are still plenty of appealing deals on offer. Check them out using our Savings Account comparison tool.

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The banks have been making noises warning that they may not pass on future rate cuts so all eyes will be on the February RBA meeting today to see what they do. Regardless, from what we have seen over the past few months, many people with credit cards and personal loans have already been left in the cold with little or no benefit from falling rates.

 

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