HOME loan interest rates may be at their lowest point in decades but the same can’t be said of credit card rates.
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With a Senate Committee currently investigating credit card charges, maybe it’s time the rest of us took a closer look at what we’re paying on the plastic.
A recent survey by ME Bank found half the nation’s households admit to being stuck in a ‘credit card roundabout’ where they are unable to pay off their card in full each month.
Part of the problem is the difficulty in gauging the true cost of a credit card. Research by comparison site Mozo shows around 40 per cent of credit cards offer honeymoon deals featuring a low introductory rate or discounted annual fees. Fast forward to the end of the honeymoon period, and the annual card cost can escalate by almost $700 thanks to higher fees or interest rates.
The presence of honeymoon or ‘intro’ deals makes it essential to look at the ongoing cost of a card once the honeymoon period ends.
At present, card purchase rates range from about 8.99% to 23.5% annually. One pitfall to be wary of is credit cards offering rewards.
Research by Mozo found one in five reward cards combine high fees with low value rewards to the point where the average spender won’t earn enough in rewards each year to cover the card’s annual fee.
Indeed in some cases, card holders need to spend nearly $40,000 each year just to earn sufficient rewards to break-even on the annual fee. With others, you would need to spend $64,000 to receive a $100 gift card.
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.
