Since the 2008 global financial crisis, we’ve seen a massive plunge in the Reserve Bank’s cash rate. Credit card interest rates, however, haven’t decreased nearly as much, and are now in fact higher than they were in 2008. This is despite the RBA cash rate still sitting 2.75% below the September 2008 level.
How does this work? Credit cards are unsecured debt which is more expensive for the banks to fund. Interest rates on credit cards have increased simply because the debt is risky in the bank’s view. Minimum repayments are very low and there is really no guarantee that the overall debt will be paid back in a timely manner.
But it’s not all bad news – there is a positive side to this new credit card economy. Whilst low rate credit cards are now more expensive than they were two years ago, they are still abundant. In fact, the number of low rate cards available has increased. In September 2008, only 66 cards offered rates under 14%. There are now 75 cards available under 14%. What does this mean for the consumer?
Unfortunately, it looks like the days of sub-10% credit cards are dead and buried with the lowest rate on the market being around 10.49%. However, depending on your spending habits, there are still ways to stop your credit card costing a fortune. For spenders who pay off their card every month, go for a higher rate credit card with no annual fee, as the interest rate won’t worry you because you pay in full each month. But the golden rule for those spenders who are paying interest each month on money owed – make sure you are on one of the 75 cards offering rates under 14%, because, in the end, annual fees will be a lot less costly than paying interest at an alarmingly high rate.
Article first published August 2010