Home loan, term deposit rates come tumblin’ down with another RBA cut - but why aren’t credit card providers budging?
With the Reserve Bank slashing official interest rates for the third time this year, we’ve seen rates of all sorts tumble down to record lows - home loan rates, term deposit rates, you name it.
But amid the rates cut frenzy, one sector has stayed largely off the radar: credit cards. Mozo data reveals that since the first RBA cut in June, the average credit card rate has actually gone up, rather than down, increasing by 10 basis points from 17.04% p.a. to 17.13% p.a..*
In other words, most credit card providers haven’t passed any part of the RBA cut to Aussie consumers, and according to Mozo’s banking expert, Peter Marshall, this has a lot to do with making profit.
“With home loan rates falling, banks have felt their interest margins start to get squeezed. They’re also getting less revenue from credit card debt since cardholders have been reducing the amount of debt they carry on cards over recent years,” Marshall said.
“So it makes sense that they wouldn’t want to give up high interest rates on credit cards.”
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That said, some smaller banks, especially mutuals, are an exception to this trend.
Auswide Bank is a standout player here. Last Tuesday, the bank passed on the full 0.25% RBA cut for its Low Rate Visa Credit Card, bringing both the purchase and cash advance rates down to a competitive 8.70% p.a..
Then why are credit card providers getting away with saying no to the RBA cuts?
Marshall said although credit card providers face growing competition from new markets like Buy Now Pay Later, they aren’t feeling the pressure to compete. That's due to one simple reason - most Aussies don’t pay much attention to their credit card rates.
“You don’t really think about what the rate is on your plastic terribly often. It’s one of those things where it’s convenient, but it’s not something that comes to top of mind when people think about not wanting to pay more than they need to,” Marshall said.
“Credit card providers who are keeping credit card rates high are, in some ways, taking advantage of the fact that many customers don’t keep a close eye on those rates,” he added.
“It’s a laziness tax - unless you really get hurt, you usually won’t dwell on your credit card rate for very long.”
And that laziness could be costing us hundreds if not thousands of dollars every year.
For instance, if your credit card had a $5,000 balance and you made monthly repayments of $200 on a 20% p.a. rate, over a period of 2 years and 9 months, you would pay $1,522 in total interest. But if you made the switch to a 8.70% p.a. card, the amount of interest you’d pay would drop down to $537 over 2 years and 4 months, which is nearly three times lower than the first plastic!**
How to hop onto a better rate today
The first step is to check how much interest you’re paying - this information can be found on your credit card statement. As Marshall puts it, “see how much your card is really costing you”.
With credit card rates, the general rule of thumb is:
- 20% p.a. or above is considered expensive - you should have a very good reason for having a card with that kind of rate, say, you want to earn rewards points for spending.
- Under 10% p.a. is considered very competitive - a great fit for those looking for a basic card without the bells and whistles.
Ready to hunt down a better piece of plastic for you and make the switch today? Check out some low rate credit cards below, or head over to our credit card comparison table for even more options.
*Data as of 2 October 2019, comparing June 2019 average with October 2019 average
**Calculations as of 8 October 2019, not considering annual fees