Shop around as newcomers disrupt credit card costs
If you're paying the minimum instalment on your credit card every month - which 56% of users do, according to the latest Old Mutual Savings & Investment Monitor - take note of the interest rate your bank is charging you, as well as all the fees levied. The most you can be charged in interest on a credit card is currently 20.50% a year, and the lowest is prime, which is 10%. And if your credit card forms part of your package or bundle, don't fall into the trap of thinking of it as fee-free. You're paying for it, and it may or may not be at a discounted rate. Find out if you could be paying less if you opted for a stand-alone credit card or a basic one that doesn't come with benefits such as airport lounge access and discounts on car hire, which may or may not be of use to you. The interest rate you're charged is almost always determined by your risk profile. The better you are at managing credit, the lower your interest rate should be. However, many people pay no attention to the interest rate they're charged. Those with a good risk profile are in a strong position to negotiate a good interest rate.Francois Viviers, executive head of marketing and communications at Capitec, says it is becoming "common" for the bank to give its low-risk, high-income clients an interest rate of 10%."A lot of credit card users are aware of the benefits associated with their card, such as access to airport lounges etcetera, but don't consider what they're paying in interest. You get customers using premium or platinum cards who are paying very high interest rates and don't realise it," he says.Capitec offers only one credit card, which attracts a monthly fee of R35, and the bank does not charge a "credit facility fee". Nor does African Bank. It too charges a monthly fee only (of R69 on both its silver and gold credit cards). Absa, First National Bank, Nedbank and Standard Bank all levy a credit facility fee over and above a monthly fee on most of their credit cards.They justify it by differentiating between the cost of maintaining your credit card facility and the cost of the value-added features on your credit card account. "That's where the wool is being pulled over the client's eyes," says Viviers. "You have to add both the monthly fee and the credit facility fee - and sometimes other fees for other benefits [to work out your total monthly cost before interest]."Virgin Money's credit card does not attract a monthly fee or a credit facility fee, but all clients are charged interest at a rate of 20.5% a year. If you settle your credit card in full each month, your interest rate isn't a big factor because you won't be paying interest, says Viviers. But only 16% of credit card users pay their credit card off in full at the end of the month, according to Old Mutual. This is an improvement on last year, when only 10% of respondents said they paid their credit card debt off in full at month end. Old Mutual's latest Savings & Investment Monitor shows that those who use their credit cards frequently use it to buy food and groceries, and that there is a strong correlation between those who buy food on credit and those who pay the minimum instalment each month.Only 18% of consumers who use their credit card for everyday purchases like groceries pay off their debt in full at the end of the month, the report shows.Also watch out for other costs on your credit card as they can quickly add up to a whack. Capitec charges customers 40c per SMS for notifications of transactions on the credit card account. If you swipe your card 20 times in the month, that's R8 extra on your bill. Viviers says Capitec is working on in-app notifications to save customers this cost. Customers can also opt out of receiving these SMSes or opt to receive them only in the event of transactions exceeding a certain limit. The cost of credit insurance can also add to your monthly credit card fees. A bank can insist on you having credit insurance - which covers your debt in the event of your death, disability or retrenchment - but it can't insist on the provider. The choice of provider is yours.Viviers says Capitec charges credit insurance on a declining balance basis, so that your premium reduces as you pay down your debt. Some banks charge a level premium, which means you pay a fixed amount for insurance for the duration of the term.Neil Thompson, head of product and customer value proposition at African Bank, says it plans to relaunch its credit card offering and revise its pricing this year. The bank is not offering prime to low-risk customers. Discovery Bank, which has migrated all of its credit card customers from FNB into the newly launched bank, is offering customers with the highest Vitality Money status "up to 6% less interest on credit". But it's not yet clear how you can achieve the highest Vitality Money score. You may need to share with the bank information on your entire financial portfolio for it to score you accurately. Also be aware that membership of Vitality Money will cost you an extra R15, R30 or R45 a month, depending on whether you go for a gold, platinum or black card, over and above your monthly account and credit facility fees.You can opt out of Vitality Money, but it could be argued that doing so defeats the purpose of having a Discovery credit card, given that the bank's entire offering is centred on rewards and incentives aimed at getting customers to financial fitness.