Next month, the interest rate on purchases for most RBC credit cards will rise to 20.99% from 19.99%, writes Rob Carrick. Other banks have already made this change on at least some of their cards
With the Bank of Canada taking a break on rate hikes, it’s a good time to reflect on whether we’ve seen the worst for rising borrowing costs.
If you’re a collector of credit card rewards like me, you’re complicit in all of this. More than ever, credit card rewards are an ethical swamp where struggling households help subsidize trips, cash and merchandise for others by paying double-digit interest rates. But credit card interest rates aren’t actually connected to the central bank’s overnight rate. Instead, they reflect a bank’s calculation about how much it needs to squeeze out of clients to be profitable after covering fraud losses, defaults and the cost of reward programs.
A basic rule of personal finance is to avoid credit card interest by paying your balance in full each month, and most people do this. In our recent, 20.9 per cent of participants reported a card balance. A survey by the consulting firm MarketSense last year found that 35 per cent of people regularly carried a balance.
Credit cards are the grease that keep households in this position moving forward. If the mortgage and putting food on the table leaves too little to pay for a car repair, the credit card covers the gap.
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