Picture by thetruthabout
While it's certainly not impossible to exist without a credit card, having one does make it much easier to shop online, as well as providing a means of accumulating frequent flyer points and various other benefits. The key trick is to pay off the balance each month, and statistics suggest that most Australians do that pretty efficiently.
Even if you do routinely pay off what you owe, however, you're likely to get slugged with an annual fee for the card. There are no-fee cards on the market, but those often have some other form of trade-off (such as not offering a no-interest period). Assuming a fee-based card looks like a good deal in most other respects, how can you tell if the charge is reasonable?
As part of its review of banking fees in Australia (which we took a glance at last week), the Reserve Bank calculated the average fees on a range of cards between 2007-2009. It considered four categories: no-frills, standard, reward-based and "gold" reward-based. The figures are based on cards which offer an interest-free period, except in the no-frills category. (Click on the image for a larger version.)
A few key points to note: fees haven't changed dramatically in the last three years. No-frills cards often don't have the cheapest annual fees: the banks are presumably assuming that cost-conscious customers who use these services will be savvy about avoiding other fees and charges, so they're effectively setting the fee to ensure the card is a profitable business choice. Reward-based cards have much higher annual fees: if you're not regularly utilising the rewards schemes, it might actually be cheaper to switch to a less "rewarding" but less expensive alternative.
The annual fee isn't the only issue to consider, of course: interest-free periods, reward schemes, extra benefits and ease of repayment options are all likely to factor into your decision. But if your preferred card costs a lot more than the numbers here, no matter which category it fits into, it might be worth asking why.
Lifehacker's weekly Loaded column looks at better ways to manage (and stop worrying about) your money.