CHOICE says if you’re paying interest on a credit card with one of the big four banks, then it’s time to switch.
A review of credit cards by consumer advocacy group CHOICE has found consumers can reduce their interest rate by more than 10% by ditching products offered by the big four banks.
Despite official interest rates falling 2.25 percentage points since November 2011, ANZ, CBA, NAB and Westpac still charge around 20% interest on credit cards they offer and do not have one product in the top 20 cards on the market.
“CHOICE has long standing concerns that credit cards are overly complex and designed to distract consumers from very high interest rates by putting a focus on rewards schemes, interest-free periods, balance transfers and ‘low’ annual fees,” says CHOICE Head of Media Tom Godfrey.
“While the major banks try to convince you their ‘low-rate’ cards are worth considering with an interest rate of 14% they are still a long way from the best deals on offer,” says Mr Godfrey.”
“According to the RBA, in August 2014 the average high rate credit card charges 19.75%, while the best rate on offer is 8.99% through Community First McGrath Pink Visa and Low rate visa. Victoria Teachers Mutual Bank Visa Platinum, Maritime, Mining and Power Credit Union Visa and Bank Mecu then come in at 9.99%, 10.12% and 10.14 respectively.”
“Not one credit card from a domestic major bank is in the top 20 products available. If you have a credit card with a big bank you are paying far too much interest and it’s time to shake off the lazy tax and move your money.”
Earlier this year CHOICE’s consumer pulse survey found 19% of Australians are living off their credit card to get through to pay day. This comes on the back of a CHOICE survey in 2013 that found 48% of Australians were unaware or unsure about the interest rate they pay on their credit card.
“While credit cards can be a convenient payment method for many consumers, knowing the interest rate you pay and staying on top of repayments each month can save you a lot of money,” says Mr Godfrey.
For someone with a $2000 debt, paying off $50 a month at a 19.75% interest rate will take five years and six months and they will pay $1,289 in interest. For a credit card with an interest rate of 8.99%, it will only take 4 years to pay off the same amount and they will only pay $386 in interest.
“With 30% of us carrying a balance on our credit cards and most of us still banking with the big banks, there are also big savings to be made by switching to a credit card offered by a smaller financial institution,” says Mr Godfrey.
Credit card tips
- Find out what interest rate you are paying on your credit card
- If your interest rate is 14% or more it’s time to switch
- If you want to stay with a major bank call them and ask for a better rate
- Create a direct debit to pay as much as you can but at least the minimum payment each month to avoid late fees and a listing on your credit report
- Every dollar extra above the minimum balance saves you interest.
Photo credit: Sean MacEntee