Credit card interest rate hit flies under radar in home loan storm

Consumers are being slugged more interest on their credit card debts by the big banks, and shouldn’t expect relief soon.

Australia’s big banks have been quietly lifting their credit card interest rates, despite rising expectations of official rate cuts by the Reserve Bank later this year.

A new analysis of the big four banks by comparison website Mozo.com.au has found that both low-rate and high-interest reward cards have gone up since late 2023.

In June Westpac will join the other three majors – CBA, NAB and ANZ – with a rewards credit card rate of 20.99 per cent, it says.

Rate increases across their cards have climbed between 0.5 per cent and 1.25 per cent since September last year, and Mozo spokeswoman Rachel Wastell said banks had also been making their rewards programs less valuable.

“Over the past few years, Buy Now Pay Later has taken more and more of the short-term credit market, which means the banks are earning less and less interest on credit cards,” she said.

“This can be seen in the declining value of credit card balances, which RBA data shows have dropped by $8bn in the past 10 years.

“Mozo analysis shows annual fees have increased by 25 per cent in the past 10 years, which could be to make up for the impact that BNPL has had on their businesses.”

Credit card interest rates among all lenders range from 7.49 per cent to 27.49 per cent, and the median rate on Mozo’s database is 19 per cent.

Mozo spokeswoman Rachel Wastell says now is the time to shop around. Picture: Supplied

Ms Wastell said the terms on zero per cent balance transfer credit cards were also getting tougher, with the interest-free term falling from 36 to 28 months.

On low-rate credit cards, the big banks offer rates between 13.49 and 13.99 per cent.

“There are still a number of low-rate credit cards below 10 per cent, so if you haven’t compared cards lately, and you’re currently paying double-digit interest, now is the time to shop around,” Ms Wastell said.

Credit Card Compare CEO David Boyd said credit cards made up a small but very profitable piece of pie for Australian banks.

“The banks are guarded about their real reasons for increasing credit card interest rates,” he said.

“Nothing changes for ages but then suddenly rates will nudge upwards.

“The recent rate increases probably relates to the cost of funding to operate their credit card business and it may also indicate increased risk from late payments and higher delinquency.”

Consumers should not expect credit card rates to follow any RBA rate cuts in the coming months.

“There’s zero chance that the banks will lower interest rates on cards this year even if the RBA lowers the official cash rate,” Mr Boyd said.

“They never have and probably never will.

“The way that banks fund their credit card business and the risk they expose themselves to from an unsecured lending product means they won’t drop rates. Unlike home loans, they also don’t have that pressure from the market to move in lock-step with the RBA.”

The Australian Banking Association was contacted for comment.

Ms Wastell said people could manage their credit card interest by paying off their balance in full each month. “If you can’t, consider getting a 0 per cent balance transfer card to reduce the interest you pay on the debt,” she said.

“Check the card fees, not just the interest rates, as annual and monthly card fees can really add up.”

Originally published as Credit card interest rate hit flies under radar in home loan storm