The $2 billion credit card rip-off: Aussies slugged with interest as banks keep rate cuts

AUSTRALIANS have paid more than $2 billion extra in credit card interest charges since 2011 due to failure of the banks to pass on cash rate cuts.

The $2 billion credit card ripoff

AUSTRALIANS have paid more than $2 billion extra in interest charges since November 2011 due to failure of the banks to pass on cash rate cuts, according to credit card comparison website Creditcardfinder.com.au.

The average credit card purchase rate has remained at 17 per cent since November 2011 despite the cash rate falling 2.75 percentage points since that period. If card providers passed on the RBA cash rate drops, the average purchase rate would now be 14.25 per cent.

From November 2011 to May 2015, banks made an estimated $21.03 billion in interest — they would have earned about $18.92 billion if credit cards followed the cash rate cuts. Credit card holders would have paid $2.11 billion less in interest over that period.

Michelle Hutchinson, money expert with Finder.com.au, said there was increased pressure from credit card providers to maintain profit margins due to cardholders being more responsible with their spending.

She added it was unlikely credit card rates would drop. “We’re not expecting most credit card providers to improve their credit card rates and pass on cash rate cuts as this trend of better credit card spending looks set to continue,” she said.

With two cash rate cuts this year, only 11 credit cards have dropped their purchase rates since January 2015, while 10 cards have increased their purchase rates.

Quay Credit Union’s Vista Credit Card saw the largest drop of 3 percentage points down to 7.99 per cent — the lowest ongoing rate on the market.

The 10 cards that increased their rates included those from Bankwest, Illawarra Credit Union, Family First Credit Union, Virgin and Coles. The biggest hike was 2 percentage points by Coles for its No Annual Fee MasterCard, now 19.99 per cent.

Mrs Hutchinson said consumers shouldn’t settle for unfair purchase rates. “Cardholders don’t have to put up with no rate cuts or higher interest rates,” she said.

“There are hundreds of credit cards on the market, many with competitive rates and fees. So it’s worth shopping around, comparing special offers as you can potentially save hundreds — even thousands of dollars — in fees.”

Originally published as The $2 billion credit card rip-off: Aussies slugged with interest as banks keep rate cuts