Banks 'cash in on interest rate cuts'

Australia's major banks are making around $225,000 a day by refusing to lower interest rates on credit cards, despite the Reserve Bank of Australia (RBA) slashing their rates to just seven per cen, according to reports.

The Australian has claimed that customers are paying as much as 20 per cent interest on their cards, although the four major banks said these rates were "under review".

However, by delaying passing on the RBA's cuts to their customers, the banks are making a huge profit and have the potential to gain up to $2 million a day, it was suggested.

Queensland-based Suncorp has announced plans to increase its interest rates on three of its credit cards by almost one per cent.

Mike Ebstein, an independent financial analyst, explained that many card issuers try to maintain price stability by keeping rates the same for a whole quarter.

This is instead of following trends and altering rates every two or three months.

He told the newspaper: "This means that cardholders are gaining when the cash rate is on the rise and losing when they come down."

Meanwhile, a spokesman for CBA commented that many customers pay their cards off within the interest-free period and are therefore not affected.

The representative added that the funding for credit card rates was not just based on the RBA's official cash rate and that other things had to be taken into consideration.

"You have to look at all of the funding sources, and the overseas markets when you are looking at credit cards," said the spokesman.

Australians owe nearly $45 billion in credit and card charge bills, $33 billion of which is recurring interest, according to News Ltd.

Compare credit card rates.

Latest Money News from Money-Au.com.au