Effie Zahos

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Effie Zahos

Effie Zahos

No relief for credit cardholders, despite rate cuts

 26/03/2012 3:23:00 PM, Prev Next

Despite two consecutive rate cuts last year and the RBA holding the cash rate this month we haven’t seen much rate relief for credit cards.

To be fair credit cards are a revolving unsecured debt so they need to be priced higher but why as much as 12 to 14 percent above the cost of funds when the default rate on credit cards is only around 2 percent?

Given most homeowners take out a package home loan that generally comes with a credit card, why not secure the card with the mortgage and charge the same rate? That would solve the unsecured credit risk.

Currently only two institutions offer such a product: Circle Credit Co-op and Service One Members Banks.

Credit card issuers put the cost of cards down to a number of things, including the cost of the interest-free period, the cost of fraud and the cost of reward schemes.

I put the cost down to just two – marketing and profitability.

The message here is simple. If you don’t pay off your card during the interest-free period, steer clear of reward cards. Grab a vanilla-style credit card or, better still, swap your credit card for a debit card.

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