Have you noticed when the Reserve Bank of Australia changes the cash rate, credit card interest rates don’t seem to move too much. That is because the interest rates charged on credit cards is generally so much higher that the rates the RBA sets.

The RBA uses what’s called the monetary policy to control financial markets in Australia, it is the cash rate the RBA changes that has the most influence.

“The cash rate is the rate charged on overnight loans between financial intermediaries. It has a powerful influence on other interest rates and forms the base on which the structure of interest rates in the economy is built.” (http://www.rba.gov.au/monetary-policy/about.html)

Yet the cash rate in relation to credit cards doesn’t move the credit card rates as much as Home Loans.

The cash rate is so much lower that the interest charged on credit cards that when the RBA do change the cash rate, credit card interest rates don’t move as much. An example would be the card lender borrows money for a lower rate (say 5%) and charges 4 times that for a credit card (20%).

Still the lenders usally increase their rates quickly when the cash rate does move up and more slowly when the cash rate heads south as we have just seen through the GFC.

If you are concerned about the interest rates on your card, you should consider balance transferring to a low interest credit card and minimise any interest you do have to pay.