Credit cards interest rates keep rising

22 June 2009

Credit cards interest rates have remained at their highest levels despite historic low official rates thanks to the Reserve Bank of Australia. In fact, it has been concluded that Australia's range of banks, building societies and credit unions have all raised the majority of their credit cards interest rates to higher than two years ago, despite the industry rate cuts.

An overview by consumer group Choice has found that the majority of credit cards lenders have only passed on a minimal amount of the interest rates cuts they have received over recent months. The study showed that while the official rates were being increased all financial institutions were quick to pass the pain onto their credit cards customers however, when these same official rates were then cut significantly, this action was not represented in the credit cards interest rates of the overall market.

Furthermore, many of the cheaper credit cards that are on the market have not actually benefitted from interest rate cuts that the more "expensive" benefits credit cards have experienced.

However, credit cards lenders have denied any unethical treatment of customers, citing funding cost blowout for risky forms of debt as the principle reason for their lack of action when it comes to decreasing interest rates. Other industry experts have also stated that there are more factors involved in credit cards interest rates than just the Reserve Bank such as the risk of default due to the loan being unsecured.

Choice group's overview found that the average interest rate increases on two different styles of credit cards were similar in their increases. Basic, low-interest credit cards typically rose from 11.15 percent to 12.05 percent since July 2007 whereas more expensive credit cards have resulted in an average increase of 17.8 percent to 17.9 percent. During this time, the Reserve Bank of Australia's official interest rates fell by 6.25 percent to 3 percent.

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