It's a fair question. Cash rates have been reduced from 4.50 per cent five years ago to a current low of 2.00 per cent. Mortgage rates have more or less been reduced by the major lenders in accord with this reduction.
"The underlying economics of the two products are profoundly different."
Mike Ebstein, Director at MWE Consulting
But the focus has switched to credit cards where there has not been a corresponding downwards move in rates. This has caused scrutineers to question if this represents an example of price gouging by the card issuers.
The short answer is: it's not. The details below explain why.
At the outset, it should be recognised that there are a number of fundamental differences between mortgages and credit cards. Credit cards, unlike mortgages, have a relatively low average balance, are unsecured debt and invariably entail a significant number of transactions per account each month.
The underlying economics of the two products are profoundly different with the funding costs on a mortgage being a much greater percentage of product costs than for a credit card.
The interest rate applied to a credit card is one element of a card's potential revenue stream and is relevant only to cardholders who elect to repay less than the total outstanding balance.
Other revenue streams include annual fees and exception fees. The latest available data on card fees from the RBA is 2013 and a review of those numbers with the years back to 2010 shows that annual fees for most cards were virtually static over the period except for Platinum Reward cards where the average annual fee reduced by 17 per cent from $283 to $236.