The National Australia Bank (NAB) has announced another element in its ongoing series of bank reforms, with a measure expected to save the average cardholder $170 each year.

Beginning January, NAB will automatically allocate monthly repayments made on credit card accounts to the most expensive, highest-interest accruing component of the card. For most credit cards, this is likely to be cash advances and balance transfers. This new reform could be the difference between an 18% p.a. interest rate and a 22% rate.

The only card holders who will benefit from these changes are those whose accounts charge different interest rates for different balances, such as balance transfers, purchases, cash advances, promotional periods, etc.
As an example, a customer with a balance that includes $500 of purchases and $500 of cash advances would currently see the purchases repaid first, whatever the sequential order of the transactions. Meanwhile, the higher interest bearing cash advances remain on the account for a longer period, therefore costing the customer more. Under the new regime, the cash advances would be repaid first.

This amendment is expected to cost the bank $4 million per year.

Currently credit card balance transfers are treated as cash advances upon the expiration of the “honeymoon” period. Under the new regime, NAB will treat balance transfers as purchases throughout the contract, again saving the customer’s money.

Consumer groups applauded the efforts made by NAB, and some believe such changes will be the industry standard within the coming year. These changes are also likely to be commended by consumers. With 2.3 million transactions, cardholders requested $915 million worth of cash advances in July alone.

NAB’s ongoing changes are expected to attract new customers and keep current cardholders content. Last month the bank terminated all over-the-limit fees on credit cards and reduced late payment fees.

Source: http://www.smh.com.au/