Are you losing out on refunds to your credit card?

27 Sept 2018

Monthly spending on credit cards has been increasing at a steady pace. Last month Kiwis clocked up over $3.9 billion in billings. This is a 34% growth in the monthly spend on credit cards issued in New Zealand, from 5 years ago.

This headline growth figure, though, hides a more interesting trend. Overseas spending on NZ issued cards has risen about 60% over the same time. This is not surprising, given that consumers are increasingly getting comfortable with shopping online. Overseas travel also has become more popular in that time.

"With more people using their credit cards for their everyday expenses, it's important for them to understand the costs associated with this. Unfortunately, most people are only aware of the surface costs, but not the other "hidden" costs, such as exchange rates, and refund policies when making purchases online", says PocketWise co-founder, Prashant Trivedy.

With the rising use of credit cards, there are a number of factors consumers should be aware of before hitting the Buy Now button. Like all financial products, credit cards come in all shapes and sizes. With variety comes complexity, especially when some of the costs of using a credit card may not be well signaled or not well understood.

A quick review of credit card comparisons on PocketWise (www.pocketwise.co.nz) highlights these costs.

Some of the obvious costs include:

• Annual card fees (you could spend anywhere between $0 and $400 a year);

• Interest rate charged on outstanding balance amounts (these vary from about 13% to 21%).

Some of the lesser-known costs include:

• The conversion rate used to convert the foreign currency into NZD. At any given point in time these are fixed by Visa or Mastercard and passed on to you by your bank or card issuing entity;

• Currency conversion charges.

Currency conversion charges are applied by your bank or similar financial services entity. Across the five main banks in New Zealand these charges can range anywhere from 1.85% to 2.5% of the NZD equivalent of the foreign currency amount of your purchase.

But, even when it comes to currency conversion charges, terms and policies can differ from one card to the other. Ever thought about what happens when you have to return an item you bought online? This depends on the terms of your card provider.

Some cards will refund your purchase amount as well as the currency conversion cost they originally charged you. Some cards refund you only the purchase amount and not the currency conversion charge. A few other cards charge you conversion costs even on your refunded purchase amount. Typically these terms will depend on the provider of the credit card facility.

While conversion charges and refund policies on each individual transaction may not feel painful, over time these not-so-obvious charges can grow to a substantial amount over a number of purchases. It pays to shop around for the right credit card.

Collectively, Kiwis carry a monthly outstanding balance of $4.15 billion dollars, bearing an interest rate of 17.9%, totaling close to $750 million.

Currency conversion charges:

ANZ – 2.5%

ASB – 2.1%

BNZ – 2.25%

Kiwibank – 1.85%

Westpac – 2.5%

ends

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