She points out that instead of falling in line with the cash rate, the average credit card interest rate has dropped only slightly since mid-2011 from 17.41 per cent to 17.35 per cent.
If rates had moved in line with the cash rate, Australian credit card holders would have paid $3.49 billion less in interest since mid-2011.
Choice is citing figures from comparison site, Mozo, which shows thatalthough the Reserve Bank has cut rates by 3.25 percentage points since June 2011, credit card holders have seen little relief in the form of cuts to credit card purchase rates.
Personal loan rates
But whilemost of the attention is given to mortgage and to credit card interest rates, the rates charged on personal loans is slipping under the radar, leaving the banks to maintain high rates withlittle scrutiny.
The gap between the average unsecured fixed-rate personal loans and the official cash rate has reached its highest point on record.
Since 2000, the gap has almost doubled, analysis of Reserve Bank figures by comparison site Finder shows.
Between 2000 and 2009, the gap was between 6 and 7 percentage points.
It climbed to about 10 percentage points during the global financial crisis in 2008.
The cash rate set, which is set by the Reserve Bank, sits at 1.5 per cent, while the average unsecured fixed personal loan rate is 13.9 per cent – a difference of 12.4 percentage points – the highest on record.
While the credit card interest rate gap has increased by 77 per cent since the start of 2000, the gap for fixed-rate personal loans has increased by 92 per cent.
The personal loan interest rates tracked by Finder are for fixed-rate loans where the loan is unsecured, as is the case with credit card debt.
Borrowers expect to pay higher interest on unsecured loans that are riskier for lenders compared withlending with security over the borrowers home.
But its the level of interest rates of credit cards and personal loans that concern Choice and others.
Kirsty Lamont, a director of Mozo, says that during the last period of rate hikes between late 2009 to late 2010 when the cash rate increased 1.75 percentage points, the big four banks each passed through the full increase on their credit cards, with two hiking by even more.
ANZ and CommBank jacked-up interest rates across their card portfolios by an average of 1.75 percentage points, while Westpac and NAB whacked cardholders with average rate rises of 1.95 and 2.17 percentage points respectively, she says.
Diane Tate, the executive director of retail policy at the AustralianBankersAssociation, says banks dont get their funds at the Reserve Bank cash rate.
She says they borrow from domestic and from offshore markets, where interest rates are higher and are dependent on global financial conditions.
Tate says after the global financial crisis, the average cost of funds for banks changed significantly.
This resulted in an increase in the spread to the cash rate for a broad range of lending products, not only in Australia but also overseas, she says.
Bells and whistles
Banks prefer to compete more on the bells and whistles oftheir credit cards, such as rewards programs, than on interest rates.
Lower-rate cards are available, but they are not offered by the big banks, though Westpacs sub-10 per cent card when it is launched,may change that.
There are deals such as balance transfer offers, which are also offered by the big banks, where no interest is charged ondebt that is transferred from another card for a period of time.
And about one-third of credit card holders pay off the whole debt by the due date and pay no interest at all.
Martin North, principal of Digital Finance Analytics, says the economics for banks of cards business and personal loans is a mix of loss rates, transaction costs and rewards programs.
However, he says, it is also about competitive positioning and market share and other pressures such as scrutiny by politicians and the media.
North says there is not as much competition on personal loans as with other types of debt and themarket for personal loans is relatively small.
With pressure on mortgage margins, banks have quietly ratcheted-up the interest rates on personal loans, cards and small business loans, he says.
Bessie Hassan, money expert at Finder, says an unsecured personal loan can be effective tool to consolidate debts so that your repayments are in one place.
Rolling credit card debt into a personal loan can be a good way of getting the debt under control as long as the personal loan has a reasonable interest rate.
Unlike with credit cards, where the minimum payment has to be made each month, and the debt does not have to paid off, personal loans have a set repayment schedule so that it is paid off over time.
Variable-rate personal loans are generally more flexible than fixed-interest-rate loans, Hassan says.
With a variable loan youre normally allowed to repay early without penalty and you can make extra repayments, but these features are rarely offered with a fixed-rate loan, she says.
Consumers should shop around as there are credit cards and personal loans with interest rates under 10 per cent, Hassan says.