IF YOU have a credit card with a major bank, you’re paying way more on interest than you should, according to consumer advocacy group Choice.

Choice completed a review of the credit card market in Australia and found that the Big Four banks – Commonwealth Bank, NAB, ANZ and Westpac – still charge around 20 per cent interest on their credit cards despite official interest rates falling 2.25 per cent since November 2011.

‘Choice has long-standing concerns that credit cards are overly complex and designed to distract consumers from very high interest rates by putting a focus on rewards schemes, interest-free periods, balance transfers and ‘low’ annual fees,’ Choice head of media Tom Godfrey said.

‘While the major banks try to convince you their ‘low-rate’ cards are worth considering with an interest rate of 14 per cent, they are still a long way from the best deals on offer.

Mr Godfrey said the Reserve Bank of Australia identified, in August, the average high rate credit card charges 19.75 per cent. Mr Godfrey said the best rate on offer is 8.99 per cent through Community First while Victoria Teachers Mutual Bank, the Maritime, Mining and Power Credit Union, and Bank Mecu had good rates.

Essentially, it’s what Choice has dubbed the ‘lazy tax’ – extra charges on those too overcome with inertia to make the move and switch to a lower interest card.

By way of illustrating the difference, consider this scenario: someone with a $2000 debt and paying off $50 a month at the higher 19.75 per cent rate would take five and a half years to pay off the card and would be hit with interest payments of $1289. In contrast, someone with the same level of debt and repayments on the lower 8.99 per cent rate would take four years to pay it off and will have only been charged $386 in interest in the process.

Mr Godfrey said: ‘Not one credit card from a domestic major bank is in the top 20 products available. If you have a credit card with a big bank, you are paying far too much interest and it’s time to shake off the lazy tax and move your money.

‘With 30 per cent of us carrying a balance on our credit cards and most of us still banking with the big banks, there are also big savings to be made by switching to a credit card offered by a smaller financial institution.’

Choice’s advice is that anyone with an interest rate above 14 per cent is getting a raw deal. And that if do want to stay with a major bank, you should ring up and ask for a better rate.

Posted by News Limited Network on 1st October, 2014