the mozo blog

As winter dies and the stress of losing weight for summer sets in, spare a thought for credit cards that have gorged for months and are entirely unfit for the christmas binge. Now’s the time to think about a balance transfer.

Since you’re a clever sort, you’ll be ogling those super-slim interest rates on Mozo’s credit card comparison page — and hey, who hasn’t snuck a glance at a lusty 0% balance transfer rate? But here’s the rub: that low interest rate could end up costing you money.

“Zounds,” you might reply, and return to your ogling, but bear with us. We’ve been having a bit of a play with our nifty credit card calculator, which spits out the actual cost of a credit card — in place of all this interest rate and balance transfer malarky. The cost is the total you’ll pay in interest and fees to kill off that debt, and as it happens, it’s the best way to judge a credit card.

So let’s peek beneath the balance transfer covers.

• Citibank’s Clear Card, for example, offers a 0% for 6 months on balance transfers — and a stupendous purchase rate of 11.99% for 12 months. However, if you don’t pay off the transfer within that time, the balance reverts to a corpulent 21.24%.

  For a debt of $3000, with repayments of $200 monthly, you’re looking at a cost of $308 in fees and interest.

• Suncorp’s Clear Options Standard credit card, by contrast, offers 1.9% for 12 months, and then 17.99% on the outstanding balance transferred. Punch in the same numbers, and the cost of knocking off that same debt is only $135.

  The difference is, well, clear.

• St George’s Vertigo credit card has a lousier balance transfer offer still, at 2.99% for 6 months. However, after 6 months any unpaid balance doesn’t revert to a sky-high cash rate, but to a quite lovely purchase rate of 12.49%.

  So what does that all mean? The same debt, with the same repayments, will cost $252 to pay off with St George.

And if, ahem, your repayments drop to only $100 each month, while that debt blows out to $5000, here’s the cost of each balance transfer in fees and interest:

Citibank Clear Card: $4639

SunCorp Clear Options Standard: $2304

St George Vertigo: $1974

The conclusion? Pay of that balance ASAP! But if that isn’t feasible, don’t just grab the best headline rate: it could be twice as expensive.

What’s the real cost of frequent flyer miles or cashback points using a rewards credit card?

We’ve all fallen for the promise of free, see-through kitchen scales paid for by credit card rewards points, magical points. Because, let’s face it, we all know the allure of something for nothing, whereas the exchange rates for credit spend, points earned and rewards purchased are anything but transparent. So are you getting value for rewards points?

On behalf of everyone whose free return flight to Dubai is looking more like Dubbo, Mozo has cracked the rewards credit card code, to reveal the true value of all those points, cashback deals and discount programs.

The results are kinda scary, so deep breath.

We thought the main difference between the 100-plus different rewards credit cards would be how many toasters / flights / gift cards you get for your annual credit spend. But in many cases, the points expire before you can cash them in, or the rewards offered takes years to attain; worse still, the value of rewards earned is often less than the annual fee.

So how do you beat the rewards card market? Well, it all depends on your credit card spend — but our new Rewards Revealer lets you plug in your numbers for a personal solution. And you’ll find the results are wildly different for flights, giftcards and cashback offers.

If you spend $15,000 a year, the best rewards cards (determined by the value of rewards minus annual fees) are:

for gift cards: Myer Visa Card — $111
for cashback: American Express Blue Sky Credit Card — $103
for domestic flights: Jetstar Mastercard — $101
for international flights: Westpac Earth — $100

Whereas for $50,000 a year, it’s a completely different story:

for international flights: Citi Emirates Platinum — $1,021
for domestic flights: Jetstar Platinum Mastercard — $851
for gift cards: ANZ Rewards Gold — $621
for cashback: Westpac Altitude Platinum — $603

Remember, the interest rates on rewards credit cards nudge up to an outrageous 20%, so unless you pay off the whole balance every month, you’re unlikely to benefit from a rewards card.

Why not check out where your credit card ranks, or who gives you the most covetable appliances a year?

Get to the points at http://mozo.com.au/credit-cards/rewards.

Richard Branson was in Sydney yesterday, bearing the news that Virgin Money is relaunching its consumer banking arm. Earmarked by Branson as “classic Virgin territory” due to the domination of the Big 4 in the marketplace, Virgin Money has declared its intentions, in alliance with Citibank, to make a ‘fair profit’ on the back of “simple and fairly priced products”. The first cabs off the rank in this quest to take on the Big 4 are in the credit card and savings account market.

Virgin Saver
The Virgin Saver is Virgin’s online savings account, a no fees account with a variable introductory rate of 6.75% for 4 months that falls back to 5.35%. These numbers put it right up there with the top 5 standard and promotional savings account rates in the market and it’s a great product, particularly as it lacks the deposit and withdrawal conditions held by some products.

Virgin No Annual Fee Credit Card
The Virgin No Annual Fee Credit Card is Virgin’s ‘no frills’ card. No annual fee and no rewards of any note. It comes with an introductory offer of 2.9% on balance transfers for six months and an ongoing purchase rate of 16.95%. Whilst promoted as “simple and fairly priced”, there are only 44 interest-free days and the card features the sneaky trick we’ve previously highlighted of reverting the balance transfer to the much higher cash advance rate of 20.99% as well.

If you plan on carrying a debt, using our credit card comparison table one can see that there are other low rate and low fee cards that could save you over $500 over 3 years on an average balance of $3000, taking into account the interest and fee costs. However, if you plan on paying off your balance in full each month, this card will cost you nothing, and is well worth picking up for those who enjoy things like the choice of card colour and Virgin’s customer service.

Virgin Flyer Credit Card
The real headline grabber here is the last product on the list, the Virgin Flyer Card, its Platinum frequent flyer card. And it’s a bit of a Jekyll and Hyde proposition.

What Virgin is hoping will sell this product is the flight rewards. The biggest selling point is that four times a year, you’ll get 2 for 1 flights on Virgin Blue. It’s a great feature that’s sure to appeal to many. Factor in the best earn rate for velocity points without getting an Amex, for the first $1,500 monthly spend anyway, and it’s a very good rewards card. Using our credit card Rewards Revealer, at the Australian average spend of $14000, it’s the clear leader once you factor in the free flights. For the high rollers looking for a Platinum Card, those spending $50,000 a year would only derive more value from the Citibank Emirates Platinum card, taking annual fees and free flights into account.

It must be noted however, that as a day-to-day credit card, it’s a pricey option. The rates’ conspicuous absence from Virgin’s release is a signpost to the card’s steep nature. With a rate of 20.99% for both purchases and cash advances and a balance transfer rate of 6.9% for 6 months that reverts to 20.99%, it’s one of the most expensive cards on the market. Throw in the interest free period of only 44 days and you can definitely say it’s not a card to accumulate debt on.

The Verdict
The Virgin Saver looks a winner, particularly given its simplicity. The No Annual Fee card is a good basic card for those who pay off their balance in full each month, but there are better options for those who like to rack up a debt. Again, the Virgin Flyer card also isn’t one for the debt accumulators, however it makes up for it with an excellent flight rewards program. With home loans yesterday stated to be in their sights, it’ll be interesting to see where Virgin goes next.

Compare all savings accounts and rewards credit cards at mozo.com.au

State against State. Mate against Mate. It’s a line that epitomises rugby league’s annual showcase of interstate rivalry, underscoring the passion and pride on display between the NSW cockroaches and the cane toads from Queensland. With rugby league’s annual State of Origin series now decided, it’s time to bring back the financial biff and pit the states head on!

Since Origin is about representing your state, community and people, we’ve decided to use what consumers have said about their banks hailing from each particular state to create an overall picture. So using the 30,000 bank reviews you’ve submitted, it’s time for Mozo’s annual ‘Rate of Origin’. State against state. Rate against rate.

With 7371 reviews behind them and big players like Westpac, Macquarie and St. George as well as no less than 4 credit unions on our list of the top 10 Australian banks in the side, NSW comes in as strong favourites. As always, Queensland are the underdogs, conceding a significant numerical advantage in both number of reviews (2416) and number of providers (10 to NSW’s 15). They’re led by Queensland stalwarts like Suncorp, Bank of Queensland and their sole representative in our top 10, CUA.

With the NSW camp already shattered and in turmoil after losing their fifth straight origin series, it will come as another body blow to the state and their footballers that NSW is getting dusted not only on the field but also in their wallets. NSW banks put up a solid if unspectacular average overall rating of 6.91, led by strong performances by Teachers Credit Union and the Greater Building Society. However, with old hands Suncorp and Bank of Queensland ably steering them round the park and strong efforts from CUA and Heritage Building Society, the banana benders have stormed home with an overall rating of 7.34 to claim the Origin title.

The real difference between the sides was the abject performance of Westpac, whose rating of 6.7 was the catalyst to NSW’s demise. If you remove Westpac from the equation, NSW’s rating rises to 7.25, a mere drop goal away from victory. NSW will be looking for Westpac to pick up their game over the next year to avoid the pain and humiliation of another Rate of Origin defeat.

So as the dust settles and the xxxx’s are cracked in bank head offices around Brisbane and wider Queensland after another fiery clash between these two interstate rivals, I implore all Origin fans out there to get behind your state and rate your bank to give your state a shot at Origin glory next year!

A slew of Australia’s banks, including the Big 4, are facing, what is being labeled as the largest class action case in corporate history. Litigation funder IMF Australia is funding several class action suits against the banks, seeking at least $400 million of the $5 billion charged in ‘exception fees’ by the banks.

Exception fees are fees charged by banks for ‘exceptional’ circumstances. These circumstances include late payment fees on both credit cards and loans, over-limit fees on credit cards, honour fees when overdrawing a bank account, and dishonour fees charged for cheques that bounce. Reserve Bank data shows that banks charged consumers $961 million in exception fees in 2008.

The impact of these fees on your credit card cost can be significant. Say you’re on a ‘low rate’ credit card with an interest rate of 11.99% and running a $3000 balance. A $30 charge for being a couple of days late on a payment effectively makes your interest rate 12.99% in terms of your cost. If you’re late or overdraw a few more times over the course of the year, the additional costs effectively transforms your low rate card into a middle of the range card without any of the perks.

The principal legal argument for the class action is that when a customer breaks a contract with a bank (by making a late payment for example), the bank may only be able to recover a reasonable estimate of the cost. IMF Australia’s contention is that the banks charge fees much higher than what can be termed a ‘reasonable estimation’, given that it actually costs banks “only a few dollars at most” when you make a late payment or overdraw on your account.

There is a foreign precedent, with close to a million Britons unsuccessfully seeking compensation for overdraft charges in 2009, though a new case set to be heard in Glasgow in June could lead to more litigation. The issue also reared its head in America, with the US Federal Reserve recently ruling that creditors must obtain a consumer’s consent before charging fees for transactions that exceed the credit limit.

Here in Australia, the worst offenders for credit card over limit and late payment fees are Citibank and Suncorp, both charging a whopping $40 for each occurrence. Even NAB, who made a great deal of noise when slashing bank account fees this year, still charge $25 for going over your card limit and $30 for a late payment. Westpac and St. George lead the way, charging only $9. However, the case goes back six years, which could still spell trouble for those who have only recently cut fees.

Even though there will most likely not be a resolution for years, if ever, it will be intriguing to see how the banks behave in the light of all this publicity, particularly in a time of record profits. Even if this case is successful, it almost goes without saying that the banks will find other means to maintain their margins, whether through higher regular account fees or interest rates. As a consumer, the best way to deal with this is to shop around. Only when customers start voting with their feet (and their wallets) will banks really address these issues.

Banking comparsions at mozo.com.au

After much debate and conjecture, the Federal government finally issued what has been widely labeled as a cautious and narrow response relative to the broad and expansive scope of the Henry Review of the taxation system. Indeed, only a smattering of the 138 recommendations outlined in the review have been taken on board for this round of reform. Left off the list were the anticipated new tax concessions on savings. Attention instead turned squarely towards superannuation with Australia’s aging population looming as a big issue.

While a lot of the focus will be on the exclusions, there were some significant steps made towards reform yesterday, the three cornerstones being:
* A 40% tax on mining industry profits, labeled as a resource rent tax on their “super profits” and netting the government $12 billion in forecast revenue between 2012-13.
* Increasing the superannuation guarantee from 9% to 12% by 2020 with the government to contribute $500 for people earning up to $37000.
* A cut in the company tax rate from 30% to 28% by 2015. Small businesses will get the cut by 2013 as well as receiving a range of other new benefits.

The changes announced yesterday have been earmarked as the first step in a wave of changes in enacting revolutionary tax reform. The government has explicitly stated that there will be more announcements in the future on savings incentives, as one of central issues to be addressed in the government’s second term agenda. This still leaves both financial institutions and consumers in the lurch for the foreseeable future however. Many hoped that by increasing bank-held deposits, the saving concessions would help reduce funding costs by alleviating the need to rely so heavily on foreign debt, thereby reducing the need for banks to enact mortgage rate rises above that of the Reserve Bank.

So all up it’s much the same for most of the players in the banking sector, at least for now anyway. All eyes now turn to Martin Place tomorrow, as we see what effect these changes (or lack thereof), will have on the Reserve Bank’s monthly cash rate announcement. Mozo’s rate chasers will be out in force, so be sure to check our Reserve Bank interest rates page from 2:30pm tomorrow to get all the latest news and rate changes as they happen.

Banking comparisons made easy at mozo.com.au

The words ‘tax’ and ‘exciting’ make strange bedfellows at the best of times, but it really can be described as a potentially exciting time for Australians on the tax front. Consumers look set for a double boost this Sunday, when the Federal Government finally releases its findings and decisions derived from the ‘Henry review’ of the tax system. Chaired by the head of the Federal Treasury, Ken Henry, the review has been labeled as a “root-and-branch” review of Australia’s tax system, and by all reports consumers could see gains with regards to both their savings and their mortgages as a result of some of the potentially adopted findings. Dr Henry handed over the report to Treasurer Wayne Swan in December 2009 and since then, Treasury officials have been working on the government’s response to the review.

In terms of Australia’s banking climate, the review looks set to cause a possibly portentous shake-up of the savings account market. Australia is one of the few countries in the developed world to currently tax bank savings at the full rate, a tag which by all reports will be shed soon, with the government preparing to offer significant tax breaks on savings. Whilst the extent of these breaks are as yet unknown, they are unlikely to match the UK model of which where individuals can deposit close to $17,000 (£10,200) tax-free. Dr. Henry is a known admirer of the UK system, yet many in the media are purporting rumours that something similar to the concessions currently in place for superannuation accounts will be announced instead. However, considering the range of options available in terms of size, scope and delivery, there’s no way to be sure till we hear what Wayne Swan has to say himself.

The tax break would also be a huge boost for Australia’s banks as it could generate billions in additional deposits, potentially lowering their funding costs through reducing the reliance on overseas finance. As a result of this, consumers could potentially receive a boost with regards to home loans payments. The banks have been very quick to use high funding costs to justify mortgage rate rises above that of the Reserve Bank‘s cash rate increases. With funding cost pressures alleviated to a significant degree, the government may well turn around and use this savings deposit boost as political leverage aimed at forcing banks to keep mortgage rates down and in turn, voters happy.

Either way, as far as the banking industry is concerned, consumers look to finally be on the receiving end of some good news. Mozo’s Rate Chasers will have a full wrap-up of all the implications for both deposit and lending accounts here on Monday, so be sure to check back to see what all the new changes mean for you.

Compare savings accounts at mozo.com.au

RBA Governor Glenn Stevens has released the text of another speech, this time to business leaders in Toowoomba. And so it’s time for analysts, pundits, commentators and generally interested persons to pick over his themes, his words and the general vibe of the thing, to try and second-guess what the Reserve Bank of Australia will do to interest rates next month.

As always, there’s something for everyone. References to good economic news and references to risks and uncertainties. If you want to predict that rates will go up in May, you can quote him on the speed of the rate cuts in 2008/9 and suggest that he’s paving the way for faster rather than slower increases. If you want to predict that the RBA will pause in May and leave rates steady, you can quote him on the need to leave flexibility in how we respond to the way the recovery unfolds. And there’s plenty each way in his analysis of the global economic recovery.

But look closer. We’ve found an ingenious code hidden in the speeches of the RBA Governor. And an astonishing truth… unveiled at last!

He tells us that, when responding to the GFC, the RBA cut rates by 375 basis points over 5 months. And that so far, they’ve responded to the recovery by increasing them by 125 basis points over 7 months, “…which is still only about a third the pace of the earlier declines.” Now 375 over 5 equals 75, but notice that 125 over 7 is well short of a third of this – it is not even a quarter! Rather than a numerical error, this is actually a clue. To get to exactly one-third, you need 200 over 8… and a 75 basis point increase in May would do exactly that! Unbelievable!

A 75 basis point increase next month is a shocking conclusion, well outside what most observers predict, but one clearly supported by the clever trail of clues he has left. But, rest assured that this would be the final increase: his speech contains 3133 words, and 3+1+3+3 = 10, and 1+0=1, ie he’s telling us that there is just one last rate rise.

Silly? Yes, but it is no less scientific than some other predictions people make from picking apart his speeches for clues. The RBA has told us clearly that there is likely to be a little bit more to go, but that the timing is up in the air. That’s all the clues they are going to give us. Maybe May, maybe June, maybe both, maybe neither.

So instead of predicting what the RBA might do, here at Mozo we’ll keep our eyes on what financial providers do in response. Every month, Mozo’s Rate Chasers update Reserve Bank interest rates with information about home loan rate rises as it comes in. And of course, you can find everything you need in our extensive database of rates, fees and features, for home loans, credit cards, savings accounts, term deposits, personal loans and bank accounts.

mozo.com.au. we chase. you save.

As you may remember, a media firestorm erupted last week when Westpac announced it would charge interest on fees and interest on all Westpac Credit Cards. Westpac defended itself by saying this is standard practice among banks — but just how standard is it?

Well, it seems Westpac was right. Across the ‘Big 4′, interest is charged on interest and fees. And they’re not the only ones either, with the likes of American Express, Citibank and St George all guilty of the same tactics.

But this isn’t all — while digging into the fine print about interest and fees, I discovered a myriad of sneaky tricks banks use in charging customers. Forget the trivial feats of magicians and illusionists like Blaine, Copperfield or Criss Angel; for real trickery you need look no further than your monthly credit card statement.

For example, a widespread ace you’ll find up providers’ sleeves involves the specific debts your repayments actually pay off. Most cards’ conditions require your repayments to go towards those purchases that attract the lowest rate. This makes any purchases made at a higher rate more likely to attract interest charges, as they are the last to be paid off.

Another little rabbit in the hat is the date from which interest is charged. Instead of charging interest from the date a transaction is posted to your statement, some providers charge from the date of transaction. While there’s only a few days’ difference, it can add up, especially for larger purchases.

And then there’s the cleverest banking sleight of hand — the ‘prestige’ in magician’s parlance. The typical 44-55 days interest-free period on purchases is often viewed by customers as a breather between spending and interest charges. But quite often this buffer pulls a disappearing act. If your balance is not paid in full by the due date, you’ll lose your interest free days with Commonwealth, ANZ and Westpac. NAB is more lenient, but you still have to maintain your monthly minimum repayment.

So what does this mean for your bottom line? If you lose your interest free days, your bank will levy interest comprising a total of daily interest charges on your purchases going all the way back to the date of purchase. While NAB and ANZ only charge this interest on the overdue amount, Westpac and Commonwealth Bank will charge the 55 days of interest retrospectively on the entire balance, even if minimum repayments are met. What’s more, you won’t get those interest-free days back until those old balances are paid in full. In some cases, such as BankWest, you’re required to pay two consecutive statements in full before they give you this ‘luxury’ back.

In The Prestige, the magician Robert Angier (Hugh Jackman) warns us: “If anybody really believed the things I did on stage, they wouldn’t clap, they’d scream.” I’d be surprised if your next credit card statement was greeted with applause…

Compare credit cards at mozo.com.au

Headlines were made yesterday when Westpac announced it will charge interest on interest charges and fees on all its credit card accounts, starting in June. While media commentators and consumer groups savaged the bank, and the Treasurer labelled it a “serial offender”, the new charges are more or less standard practice — at least among the big banks. So why all the fuss?

On the one hand, as Westpac itself points out, the changes will have a “tiny effect on balances”, apparently 67 cents a month for those affected. Moreover, Westpac is simply coming into line with the other Big 4s – so why single it out for being a late adopter of minimal charges?

The problem is that, at the end of the day, it is another tricksy initiative: fiddling with the fine print to raise revenue without altering the headline rate. And if the net result is in fact tiny, is it really worth the media storm that’s now engulfed the bank?

You have to think Westpac’s PR department has either had a really big St Patrick’s Day or been taken hostage by the bean counters. Consumer sentiment towards Australia’s largest home loan lender is at an all-time low, following its 45 basis point rate rise in December and the subsequent smoothie-fueled furore. Gail Kelly’s leaked comments about rising funding costs – and possible interest rate hikes of a further 30 to 40 basis points – have hardly helped. And profits are already up a third on the previous year, while Westpac was awarded the double-edged title of “World’s most profitable bank” by the famed Boston Consulting Group.

Justifying new charges in a general banking climate of fee cuts is a difficult proposition. At the same time, slamming a bank for catching up to its peers on a minor new charge is more media stunt than serious consumer advocacy.

Stay tuned for our wrap up of sneaky credit card fees — who’s leading the charge, and who simply has bad PR.

Compare credit cards at mozo.com.au