My credit card rates just went up and yours probably did too.
Last month, very quietly, with little press and certainly no fanfare, Irish banks cranked up their credit card rates. I knew about it because we watch these things, we get notifications from some of the banks and we do regular checks anyway. But after we'd changed the credit card rates on bonkers.ie, I realized that as a customer I hadn't been told by my own bank. I thought maybe I'd missed it, checked my unopened post at home and still nothing. No letter that said "due to market conditions... charging you more interest... new rate from next week... etc etc".
I never go into my branch so I saw nothing there and I didn't see anything in online banking. Although it was caught by a few journalists, I checked with some friends and none of them knew about it. Some called their banks to check and sure enough, their credit card rates had gone up. Amazing. For all the big Irish banks to hoof up interest rates at the same time without so many of their customers noticing was a remarkable act of stealth, and I was truly impressed.
Now when my mortgage goes up, which is seems to about every six months (no tracker for me unfortunately), I get a letter, and of course it ends up all over the press. I would have expected the same for my credit card so I did something I've never done before. I went online, dug out the (shudder) credit card Terms and Conditions and started reading.
I'll abbreviate what they say about hiking my rates and how they're supposed to let me know... The bank can tell me by post, or by an ad in a newspaper, or on my statement, or a display in the branch, or online. I got no hint as to which one they used though. And whether I see it doesn't matter either. If I use my credit card after the "notification" I'm deemed to have accepted the changes. Just like that.
In fairness, a variable interest rate is just that. It can go up whenever the bank feels like it and if you don't like it, you can (theoretically) take your balance and schlep it on to one of those 0% interest balance transfer deals. But that's just it... very few people in Ireland can do that anymore so the banks have you where they want you. We now know that more than 60% of people applying for new credit cards are getting turned down. When Halifax pulled out of Ireland, the press was full of stories about people that couldn't get new credit cards with the Irish banks despite their good credit. Or if they did get new cards, than banks didn't want to take on their Halifax balances and gave them a limit much lower than they'd had previously.
Of course the banks are hurting for cash and I'm sure they are constantly on the lookout for ways to bring in more. This is a cunning little maneuver for them because the average Irish person has a balance of about €900, as a country we're in hock to the tune of about €2.1 billion on our credit cards, and most of us can't take our business elsewhere. So for every 1% increase in credit card interest, the banks are set to make €21 million between them. Not bad at all.
With so much of our cash at stake, I thought I should take a closer look at exactly what they've been up to. The three big cards from the three big banks are AIB's CLICK, Bank of Ireland's Clear and Permanent TSB's ICE. All of them put up interest rates last month. The BOI Clear purchase interest rate went up by 3.8% to 13.3% and the cash advance rate went up to 26% - a staggering 6.1%. PTSB put up the ICE purchase rate by 3.8% to 17.3% and increased the cash advance rate by just over 2%. And finally AIB increased their CLICK standard purchase interest rate by 4.1% to 13.6%. By anyone's measure, these are pretty hefty increases and with a quick back of envelope calculation I'd estimate that the banks are set to make over €100 million by doing this.
There's more to this though. Credit cards are set up in such a way that you always pay off the cheapest debt first. If you use your credit card to take €100 from an ATM and then use it for a €100 restaurant meal, you pay back the meal first because the bank wants to earn the big bucks off the cash advance. For example, with Bank of Ireland, you're paying almost double the interest for cash advances. They want to make that 26% interest for as long as possible even though it doesn't cost them any more to lend it to you.
At a time when people are finding it much harder to pay the bills, and the banks know their customers can't take their credit card balances elsewhere, I have to admit to just a smidgen of cynicism. One of the banks uses the tagline "Squeeze the most out of your credit card"... perhaps they should add the word "customers" to the end of that.