Paul Clitheroe
Paul Clitheroe

Some cards refuse to budge - so shop around

DESPITE a string of cuts to the official cash rate over the past year, there's a good chance the interest rate on your credit card hasn't budged in the last 12 months.

Since last November the Reserve Bank of Australia (RBA) has dropped the official cash rate by a total of 1.5%. Yet according to comparison site RateCity most credit card rates have remained unchanged over the same period.

Only around one in four personal credit cards has delivered a rate cut in the last year, with the average reduction being a miserly 0.44%.

That's seeing credit card interest rates average 17.26% at present - 14% more than the RBA cash rate. It's a gap RateCity says is the biggest it's ever recorded.

Put simply, it means we're paying through the nose for many credit cards, and it's worth taking a look to see what your card is charging. You may have lost track of the rate on your card, but if you're paying anything close to the average the interest burden could be a serious drain on your finances.

As a guide, on a card debt of say, $3,000, which is about the average outstanding balance, you could be paying annual interest charges of $520.

Switching to a cheaper card is a simple way to trim the cost. The majority of credit cards may have kept their rates the same this year but with some shopping around you should be able to get a better deal.

It pays to look outside the big banks. Presently, the cheapest card available is Community First Credit Union's Low Rate Visa charging 9.50%. Or you could pay 10.25% with the likes of Greater Building Society's credit card. Some cards however, have interest rates above 20%. Go figure!

Switching the same $3,000 balance from a card charging 17.26% to one with a rate of 10% could mean saving $220 in annual interest costs. It's money that can be used to reduce the outstanding card balance and stretch your savings even further.

If you are in the market for a new credit card, government reforms took effect in July that make it mandatory for  card issuers to provide standardised fact sheets. These make it easier to compare between different products, so it's worth requesting one for any credit cards you're considering.

Nonetheless with Christmas not too far away, I reckon it's worth aiming to use your debit card rather than a credit card at the checkout.

Debit cards let you use your own money to make purchases, and that means you won't be left with an over the top debt once the New Year rolls around, and you won't end up paying interest charges on your purchases.

Paul Clitheroe is a founding director of financial planning firm ipac, chairman of the Australian Government Financial Literacy Board and chief commentator for Money magazine. Visit for more information.

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