Do you know your credit card rate?

[box border=”full”]CHOICE says almost half of Australians don’t know their credit card rate. Meanwhile banks enjoy $6.2 billion ‘rewards program’.[/box]

CHOICE has released new survey results showing that 48% of Australians who reported using their credit card recently say they do not know or are unsure of the interest rate that would apply.(1)

At the same time, the gap between the Reserve Bank’s cash rate and the average credit card interest rate has widened by 176 basis points since June 2011,(2) earning the banks an additional $630 million this year alone.(3)

CHOICE says the survey confirms that credit cards are deliberately confusing products, designed to distract consumers from very high interest rates.

“As a nation, we’re paying interest on more than $36 billion of credit card debt, yet almost half of us are uncertain what it costs us,” says Alan Kirkland, CHOICE CEO.(4)

“Credit cards are marketed as a convenient payment option, often with a modest annual fee, honeymoon interest rate periods and seemingly lucrative rewards programs.

“But the real rewards program here is for our banks, who earn an estimated $6.2 billion in revenue from average credit card interest rates of 17.16 per cent,” Mr Kirkland says.(5)

Calculations from show average credit card interest rates now sit 14.41 per cent above the Reserve Bank’s cash rate, up from 12.65 per cent in June 2011.

If credit card rates had moved in line with the RBA cash rate since mid-2011, the average Australian credit card user would be over $80 a year better off.(6)

“The consumer psychology around credit cards is very different to home loans, where we see so much focus on interest rate movements, and a huge amount of public pressure,” Mr Kirkland says.

“That’s a problem, because there is really a lot more choice in the credit card market, with many no frills, low-interest options.

CHOICE says a simple comparison from its unbiased Compare, Ditch & Switch site, powered by, shows the average cost of the five lowest rate credit cards is $1,300 less than the five most expensive over three years, assuming a balance of $3000.

“The message is simple – check your credit card interest rate, and if you’re someone who does not pay off your balance in full every month, consider switching to a low-rate, low-fee card,” Mr Kirkland says.(7)

CHOICE is also encouraging the Federal Government to look at ways of empowering Australian consumers with access to their own consumption data to assist in complex decisions, including around credit cards.

“Last July we welcomed important reforms to make credit cards less confusing, including information on statements about what happens if you only make minimum repayments,” Mr Kirkland says.

“This should be taken further, borrowing from overseas approaches like the UK government’s midata program, allowing consumers to make unbiased comparisons of credit products based on their actual spending and repayments over time.”


(1) CHOICE commissioned a nationally representative survey of 1,045 online Australians between 23 and 26 May 2013. The survey questions were part of a weekly omnibus conducted by Essential Research. When the 79% of respondents who reported using a credit card in the last 3 months were asked, “Do you know the interest rate that currently applies to new purchases on your credit card?”, 48% responded either “No” or “Unsure / Don’t know.”

(2) Calculation from of ‘Rate gap over RBA’ comparing average interest rate of all credit cards with RBA cash rate on 6 June 2011 and 6 June 2013.

(3) Total interest is calculated using 6 June 2013 average credit card interest rate of 17.16% applied to the total Australian credit card balance attracting interest (RBA Credit and Charge Card statistics, April 2013).This is compared with interest calculated using the average credit card interest rate reduced by the ‘Rate gap’ of 176 basis points, a resulting interest rate of 15.4%. The difference is $636,299,325.

(4) RBA Credit and Charge Card statistics, April 2013.

(5) Average credit card interest rate of 17.16% applied to total credit card balance attracting interest.

(6) Calculation uses total credit card balance attracting interest, and applies the average credit card interest rate and the average reduced by the ‘Rate gap’ of 176 basis points. The two results are then divided by the number of credit card holders in Australia according to Roy Morgan, 2013 (quoted by ASIC at The difference between the two figures is $83.

(7) Comparison of all credit cards on Compare, Ditch & Switch accessed at on 24 June, 2013. Cards compared on the basis of total interest over three years, assuming a $3,000 balance and no interest free period. Difference is $1,311.

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