According to the Reserve Bank of Australia (RBA), banks made $12 billion in fees in 2014 – with credit card fees contributing the most to household's bank fees.
It seems households aren't learning the lesson with higher use of credit cards by both consumers and businesses says the RBA. The average credit card debt stood at $3,192 in April 2015, and many households have more than one credit card.
The Australian Bankers' Association (ABA) said there were more than 119,000 credit card accounts in 2014, and credit card spending rose 7% last year to a whopping $281 billion. More of us are using credit cards to purchase goods overseas – from which banks are charging foreign exchange conversion fees. The ABA added that fees made up 40% of bank profits in 2014, which is a record low as a proportion of bank assets, income and profits according to ABA chief executive Steven Munchenberg.
Australia's big four banks Australia and New Zealand Banking Group (ASX: ANZ), Commonwealth Bank of Australia (ASX: CBA), National Australia Bank Ltd (ASX: NAB) and Westpac Banking Corp (ASX: WBC) made a combined $28 billion in profit last financial year.
More than two-thirds of that $12 billion in fees comes from businesses. Households paid $4.17 billion in bank fees last year, with $1.4 billion of that in credit card fees. Home loan and deposit account fees have fallen.
Most business credit cards have interest rates of more than 10%, while several still have rates above 20%, despite the official cash rate sitting at 2%. They also feature a wide variety of 'extra' fees including annual fees, fees for late payment, going over the limit, higher interest rates for cash advances and additional fees for overseas ATM withdrawals.
Almost all personal credit cards have rates above 10%, with many having interest rates as high as 20.99% – which again doesn't include other fees, such as annual, late payment and over limit fees.
ASIC's MoneySmart website features a credit card debt clock which estimates we owe more than $30.3 billion and pay $5.46 billion in interest each year. Most card holders pay around $600 in interest each year.
If you're sick of paying credit card fees and interest, here's some tips on how to beat the banks.
- Shop around and switch to a lower interest rate card. In some cases, you can switch to a no or low fee credit card by transferring your balance. Just be sure to pay it off before the interest-free period expires.
- Make sure you understand what fees and interest you are paying, as an example, do you get an interest-free period? Cash advances can be much more costly than normal purchases too.
- Forget the rewards attached to credit cards. In most cases, you'd have to spend much more on the card than you would normally to take advantage of the awards points.
- When travelling overseas, take a pre-loaded travel card instead. They usually come with much lower fees, particularly when it comes to hefty currency conversion fees the banks impose.
- Cut up, pay off and then replace your credit card with a Mastercard or Visa debit card linked to your transaction account. In some cases, you can get a personal loan to pay off your credit card.
