How much interest are you paying on your credit card? Too much!

Sometimes the best way to save money is to find better deals on your financial products and utilities, including your mortgage, gas and electricity and credit cards.

Credit cards are one such product where a better deal is often on offer from the one you are currently have.

That’s because the interest rate you pay on your credit card can be a staggering 18 percentage points higher than the official interest rates set by the Reserve Bank of Australia (RBA).

Consumer watchdog Choice highlighted that very point this week, when it called on Australia's banks to pass on rate cuts to credit card customers, having found that $6.3 billion worth of savings were withheld.

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High credit card rates is an ongoing issue

The official interest rate is 0.25 per cent. It is likely to stay at that level for some time to come, especially as economies battle the aftermath of COVID-19 and find ways to recover.

The highest credit card interest rate is 21.49 per cent for Citi’s Prestige Card, followed closely by the ANZ’s trifecta of its Rewards, Rewards Black and Rewards Platinum cards at 20.24 per cent.

What is of concern is that in this low interest rate environment, the ANZ has lifted its rate from 18.79 per cent in April 2016, while Citi was already at a high 20.74 per cent four years ago.

These two aren’t the only culprits. Bendigo Bank, ME Bank, the Bank of Melbourne and others have raised rates, despite constant decreases by the RBA.

Surprisingly, it wasn’t always this way: consumers weren’t always penalised so heavily for their purchases.

In fact, prior to 2010 credit cards rates fell in line with the RBA cash rate.

Now, we all know that banks make a tonne of money by lending at higher rates than they borrow.

It’s standard practice.

The banks have to make money, so they can lend you money. However in 1995 when the cash rate was 7.5 per cent, the average standard credit card interest rate was under 17 per cent.

It doesn’t take a genius to figure out that the banks have been gouging to some degree throughout the last couple of decades.

Why do interest rates on credit cards rise, when other rates fall?

One reason is that your credit card is effectively an unsecured (not leveraged to an asset) loan and subject to default if you can’t pay back the debt.

COVID-19 has taken a heavy financial toll and there is a fear among banks that defaults on mortgages and cards are on the horizon.

Of course, that doesn’t take into account pre-pandemic rises, but security for banks is an issue, which is also the reason serviceability criteria is so high.

Another reason why interest rates on credit cards are so high is that the amount of people paying interest has fallen. Economist Jason Murphy told news.com.au last year that “Interest payers went from being almost 40 per cent of credit card holders to around 25 per cent between 2010 and 2016. That might explain the high interest rates — banks need to make more money from the shrinking share of people who do pay interest.”

The problem with higher rates, especially in this climate is they give less power to the RBA’s monetary policy, therefore interest rate changes have less effect at a time when the economy requires stimulus not higher fees and fines.

So what should you do?

Compare rates and find a better card. Seek out a low rate card. You can compare over 154 low rate credit cards with InfoChoice.

Here are InfoChoice’s top five low rate cards:

Note all of the above choices have annual fees, however they are all closer to the official 0.25 per cent rate than those with rates close to 20 per cent or more and will save you money over the long term.

These rates will also make it easier for you to pay down your credit card debt quicker, putting money back in your pocket.

Credit cards are seen as predatory products, but they don’t have to be. Correct use, including paying your monthly balance off on time, can ease a great deal of financial burden on the family home.

A low interest rate will ease that burden further.


This update is not financial advice. This article is general news and information.

Home Loans: The comparison rates are based on a secured loan amount of $150,000 and a term of 25 years.

Personal Loans: The comparison rates in this table are based on a loan of $30,000 and a term of 5 years unless otherwise indicated in the product name with^, in which case, the comparison rate is based on a loan of $10,000 and a term of 3 years. The comparison rates are for unsecured personal loans only for the relevant amounts and terms. The comparison rates for car loans and secured personal loans are for secured loans unless indicated otherwise.

WARNING: This comparison rate applies only to the example or examples given. Different amounts and terms will result in different comparison rates. Costs such as redraw fees or early repayment fees, and cost savings such as fee waivers, are not included in the comparison rate but may influence the cost of the loan. Comparison rates are not calculated for revolving credit products.

The products compared in this article are chosen from a range of offers available to us and are not representative of all the products available in the market and influenced by a range of factors including interest rates, product costs and commercial and sponsorship arrangements

InfoChoice compares financial products from 145 banks, credit unions and other financial institutions in Australia. InfoChoice does not compare every product in the market. Some institutions may have a commercial partnership with InfoChoice. Rates are provided by partners and taken from financial institutions websites. We believe all information to be accurate on the date published. InfoChoice strives to update and keep information as accurate as possible.

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