Credit card rates: Slow to fall, quick to rise

Major banks have been quick to pass on the first interest rate rise in full to their credit card holders – in contrast to their reaction to rate falls last year.

The four major banks passed on the May official rate cut of 0.25 percentage points promptly and in full last month.

However, InfoChoice historical data shows the banks were slow to move on cutting card rates when official rates were falling last year and did not pass cuts on in full.

Over the course of 2001, ANZ, NAB, CBA and Westpac cut the interest rates on their main credit card offerings by between 0.75 and 1.5 percentage points despite official rate cuts of 2 percentage points.

If the banks continue to pass on expected rate rises in full to cardholders over the course of 2002, the result will be that their interest rate margins on credit cards will increase, raising card profitability for the banks.

If official interest rates rise again this week, can we expect the full flow on again to credit card rates?

The scrutiny to which home loan rate adjustments are subjected have meant the banks face enormous pressure to pass on both falls and rises in full within ten days or so of official rate moves. With credit cards not under the same spotlight, there does not appear to be the onus for banks to meet consumer expectations on these products.

 Interest Rate at Feb 01Interest Rate at April 02Change (Feb 01 to April 02)Interest Rate at May 02Change (April 02 to May 02)
Reserve Bank Official Cash Rate6.254.25-2.004.500.25
Cards with Interest Free Days
InstitutionProduct Name 
ANZ BankANZ Free Days Mastercard16.7515.75-1.0016.000.25
Commonwealth BankTrue Rewards Credit Card16.6515.65-1.0015.900.25
National Australia Bank44 Days Interest Free Visa16.7515.25-1.5015.500.25
Westpac55 Day Visa Card16.1515.40-0.7515.650.25
Cards with No Interest Free Days
InstitutionProduct Name 
ANZ BankANZ Low Interest Mastercard13.7512.75-1.0013.000.25
Commonwealth BankNo Interest Free Period Visa Card14.7514.00-0.7514.250.25
National Australia BankFee Free BankCard15.8514.35-1.5014.600.25
WestpacNo Annual Fee15.2013.95-1.2514.200.25