Since taking on its first retail customer in 2015, Afterpay’s expansive growth has led a revolution that has not just shaped our payments sector, but shaken it to its core. Adopting Afterpay and its BNPL ilk, many users have shunned credit cards, choosing instead to ‘pay in four’, while paying out zero interest and – in the case of Afterpay, at least – no fees, as long as all payments are made on time.

How did the credit card industry respond? Overall, credit cards in Australia have remained largely unchanged as BNPL continues its surge through the nation’s retailers – although some now offer BNPL-inspired instalment plans that allow cardholders to spread the cost of selected card payments at a lower rate of interest than their card’s standard rate.

With that being said, some card providers have stepped it up further, either by teaming up or taking over with their own BNPL offering. CommBank’s StepPay (more on that later), and Westpac’s partnering with Afterpay to offer its standard savings and transaction accounts through Afterpay’s app are just two examples of this. But what about ‘no interest’ credit cards?

Towards the end of last year, both NAB and CommBank released ‘no interest’ credit cards in an attempt to rival BNPL. As such, NAB’s StraightUp Card and CommBank’s Neo both provided a similar offering, giving users access to a set credit limit in return for a monthly fee, with no interest or late fees applied.

So, how do these interest free options compare? Do they really save you money? We thought we’d take this opportunity to take a closer look at StraightUp and Neo, to see how they compare to traditional credit cards in terms of cost, so you can find out which option might work better for your wallet.

NAB StraightUp Card

The idea behind both NAB’s StraightUp Card and CommBank’s Neo is simplicity. When you carry a balance on a traditional credit card, you pay interest at a variable rate. But, you don’t really know how much that interest cost will be – unless you’re a whizz with a calculator, and you actually understand how credit card interest is applied.

So, instead of charging a variable amount of interest, StraightUp and Neo charge a set monthly fee based on the cardholder’s credit limit. Here’s how those fees stack up on the StraightUp Card.

• If you opt for a $1,000 credit limit, your monthly fee will be $10.
• If you opt for a $2,000 credit limit, your monthly fee will be $15.
• If you opt for a $3,000 credit limit, your monthly fee will be $20.

Every month you use your card to make a purchase, you will pay a monthly fee. If you carry a balance and don’t use your card, you will pay a monthly fee. If you don’t use your card and don’t carry a balance, you won’t pay a fee.

And annual fees? There are no annual fees on this card or on CommBank’s Neo. Neither card charges a late fee or currency conversion fees on purchases made in a foreign currency.

Using the Card

When you apply for a NAB StraightUp Card, you choose your credit limit. As with any other credit card application, NAB carries out a credit check to make sure you are a responsible borrower and that you can afford that limit. Once approved, you can choose to lower your limit at any time, but if you want to increase your limit, your request may be subject to another credit check.

Using the card day to day, you can make purchases instore and online, wherever Visa is accepted. However, there are limits to the type of transactions the card will allow. You cannot use the card to make withdrawals at the ATM, to gamble, or for any other transactions typically processed as cash advances, such as buying gift cards, lottery tickets or foreign currency.

At the end of each statement period, you will receive a statement outlining your transactions and the minimum payment amount. Unlike traditional credit cards, which usually use a percentage system to calculate minimum repayment amounts (for example, 2% of the closing balance), StraightUp has a fixed minimum monthly payment amount, depending on the user’s credit limit.

• With a $1,000 credit limit, your minimum monthly payment amount will be $35.
• With a $2,000 credit limit, your minimum monthly payment amount will be $75.
• With a $3,000 credit limit, your minimum monthly payment amount will be $110.

While you are required to make at least the minimum monthly payment, it’s recommended you pay off your closing balance in full wherever possible.

Anything else you need to know about using the NAB StraightUp Card?

• With a $1,000 credit limit, your minimum monthly payment amount will be $35.
• With a $2,000 credit limit, your minimum monthly payment amount will be $75.
• With a $3,000 credit limit, your minimum monthly payment amount will be $110.

CommBank Neo

The CommBank Neo card works in much the same way as NAB’s StraightUp Card – with a few notable differences. Let’s start with its fee structure. With the CommBank Neo, you will pay a set monthly fee based on your credit limit, with no annual fees, late fees or currency conversion fees to worry about.

• If you opt for a $1,000 credit limit, your monthly fee will be $12.
• If you opt for a $2,000 credit limit, your monthly fee will be $18.
• If you opt for a $3,000 credit limit, your monthly fee will be $22.

As you can see, Neo’s fees are slightly higher than the StraightUp Card, but, it does operate in the same way with regards to how and when those fees are charged. You will only pay a monthly fee when you have used the card and/or when you carry a balance during that statement period. If you don’t carry a balance or use the card, your monthly fee will be charged and reversed.

Using the Card

You can use the CommBank Neo card to buy stuff instore and online, anywhere Mastercard is accepted. Again, transactions typically processed as cash advances, such as ATM withdrawals and gambling transactions are not allowed. Balance transfers are also not offered, but unlike the NAB StraightUp Card, you can add an additional cardholder to your Neo account at no extra cost.

In terms of card features, these mirror many of the standard features offered within CommBank’s traditional credit card range. Lock, Block, Limit provides additional control for cardholders day-to-day, while features such as a Spending Cap and Spending Tracker & Insights make it easier for cardholders to manage their money. Apple Pay compatibility is also on offer.

Another feature that sets Neo apart from StraightUp is its tie-in with CommBank Rewards. Before you get too excited, no, this is not the same as CommBank Awards, the bank’s credit card rewards program. CommBank Awards is available through the CommBank app, allowing cardholders access to cashback offers when using their card with partner retailers.

Source: https://www.commbank.com.au/digital-banking/rewards.html?ei=cc-rewards

CommBank StepPay In the intro, we mentioned CommBank StepPay. So, what is this exactly? Early last year, CommBank announced its partnership with BNPL provider Klarna. Now, CommBank is taking a step up the BNPL ladder, providing its own BNPL service in the yet-to-be-launched StepPay. What is it? Managed via the CommBank app and accessed via their smartphone or device, StepPay is a digital-only card that cardholders can use to buy stuff instore or online, wherever Mastercard is accepted. When using the ‘card’ to make a purchase under $100, the full amount will simply be deducted from the user’s linked CommBank account. For purchases of $100 or more, CommBank will automatically split the purchase into four equal, fortnightly repayments. How much will it cost? Using StepPay, there are no interest charges, no monthly fees and no annual fees. Like Afterpay, late payment fees will apply, but CommBank states there will be limits in place, so fees will be capped overall. Who can apply? StepPay will be offered to eligible CommBank customers once it’s available. The bank notes that applications are subject to credit approval, with credit limits up to $1,000 in place. How will it compare? CommBank has been making an effort to broaden its appeal within the payments market, partnering with Klarna, introducing Neo, and now launching StepPay. Charging no monthly fees or interest, StepPay could certainly appeal to fans of BNPL, however, limiting credit to $1,000 may put off other users who are interested in making larger purchases.

StraightUp vs. Neo

Okay, time to compare StraightUp and Neo side by side. There are really only three factors that separate these two ‘no interest’ credit cards: fees, features, and additional cardholders.

In terms of fees:

• Neo charges $2 more per month than the StraightUp Card on a $1,000 credit limit.
• Neo charges $3 more per month than the StraightUp Card on a $2,000 credit limit.
• Neo charges $2 more per month than the StraightUp Card on a $3,000 credit limit.

Over a period of one year, if you used the card every month, you would pay $24 more keeping Neo in your wallet with a $1,000 or $3,000 credit limit, or $36 more with a $2,000 limit.

In terms of features, you can earn cashback via CommBank Awards with Neo. While this feature may be valuable in certain circumstances, it can’t be assigned a dollar value, as the amount of cashback you earn would depend on how much you spend and where, as well as what offers are made available to you.

Lastly, additional cardholders. While this may not be a big deal for some cardholders, others may want to provide additional cardholders access to their account. Currently, that would mean opting for Neo over StraightUp.

PayPal’s New Pay in 4 While CommBank’s StepPay is yet to launch, PayPal introduced its new BNPL service Pay in 4 last month. Going head-to-head with the likes of Afterpay, Pay in 4 allows users to pay in four equal fortnightly instalments, with no interest, no monthly fees – and unlike Afterpay, no late fees. All PayPal users need to do to opt in is press ‘Pay in 4’ when they checkout with PayPal. Let’s get back to those no late fees. The application of late fees has been a major sticking point for BNPL detractors, who claim they cause significant debt problems for users who overstretch themselves. And while BNPL players state their profits come from merchant fees rather than user late fees, ASIC stats revealed one in five BNPL users paid late fees in 2019, totalling $43 million overall. When it announced the launch of Pay in 4 back in March, PayPal outlined its schedule for late fees, which would charge tardy users up to $10 on purchases under $125, and a maximum of $30 on purchases over $125. However, after market research indicated late fees were a significant turn-off for users, PayPal abandoned its plans to charge late fees altogether. Using that research data, PayPal also made the decision to lower the minimum transaction value for Pay in 4 from $50 to $30, while leaving the maximum transaction amount unchanged at $1,500. How will Pay in 4 stack up against traditional credit cards? That will depend on the user. Traditional cards can be used pretty much everywhere, while there may be limitations on where Pay in 4 can be used. There is also that top transaction limit of $1,500, which may not work for users wanting to spend more on say, a holiday or a big ticket item.

No Interest Cards vs. Traditional Credit Cards

With comparison in mind, let’s check out a few spending scenarios on ‘no interest’ credit cards and traditional credit cards to see when one might work better than the other. Why? Well, while having a credit card with no interest may sound like a cheaper option than a credit card that does charge interest, it doesn’t always work out that way.

Toni regularly spends on her credit card, averaging $500 per month. She always clears her balance at the end of the month.

• Using the NAB StraightUp Card with a credit limit of $1,000, she would spend $10 per month in monthly fees, paying out a total of $120.
• Using the CommBank Neo with a credit limit of $1,000, she would spend $12 per month in monthly fees, paying out a total of $144.
• If she opted for a no annual fee card, Toni would pay no ongoing fees at all, while paying no interest clearing her balance at the end of the month.

Phil spends on average $1,500 on his card each month. He also clears his balance at the end of each month.

• Using the NAB StraightUp Card with a credit limit of $2,000, he would spend $15 per month in monthly fees, paying out a total of $180.
• Using the CommBank Neo with a credit limit of $2,000, he would spend $18 per month in monthly fees, paying out a total of $216.
• If he opted for a no annual fee card, Phil would pay no ongoing fees at all, while paying no interest clearing his balance at the end of the month.

Robyn spends $2,500 on her card each month and clears her balance by the due date.

• Using the NAB StraightUp Card with a credit limit of $3,000, she would spend $20 per month in monthly fees, paying out a total of $240.
• Using the CommBank Neo with a credit limit of $3,000, she would spend $22 per month in monthly fees, paying out a total of $264.
• If she opted for a no annual fee card, she would pay no ongoing fees at all, while paying no interest clearing her balance at the end of the month.

In those examples, you can see how keeping a no annual fee credit card provides a much cheaper option than a ‘no interest’ credit card. Now, let’s mix it up a bit to see how different repayment habits might change that.

Morven spends $1,000 on her card, then pays off the purchase in equal instalments over 12 months.

• Using the NAB StraightUp Card, she would pay $10 per month in fees, plus $84 to pay down her balance. Overall, she would pay back $120 in fees.
• Using the CommBank Neo, she would pay $12 per month in fees, plus $84 to pay down her balance. Overall, she would pay back $144 in fees.
• If she opted for a no annual fee card with a purchase rate of 18% p.a., she would pay no ongoing fees, but she would pay $83 in interest overall, with monthly repayments of $91.

The traditional credit card is the cheapest option here, with an outgoing cost of $83. StraightUp comes in second, costing $37 more. Neo is third, costing $61 more.

Gary spends $2,000 on his card, then pays off the purchase in equal instalments over 12 months.

• Using the NAB StraightUp Card, he would pay $15 per month in fees, plus $167 to pay down his balance. Overall, he would pay back $180 in fees.
• Using the CommBank Neo, he would pay $18 per month in fees, plus $167 to pay down his balance. Overall, he would pay back $216 in fees.
• If he opted for a no annual fee card with a purchase rate of 18% p.a., he would pay no ongoing fees, but he would pay $166 in interest overall, with monthly repayments of $182.

The traditional credit card comes out on top again, with an outgoing cost of $166. StraightUp comes in second, costing $14 more. Neo is third, costing $50 more.

Annette spends $3,000 on her card, then pays off the purchase in equal instalments over 12 months.

• Using the NAB StraightUp Card, she would pay $20 per month in fees, plus $250 to pay down her balance. Overall, she would pay back $240 in fees.
• Using the CommBank Neo, she would pay $22 per month in fees, plus $250 to pay down her balance. Overall, she would pay back $264 in fees.
• If she opted for a no annual fee card with a purchase rate of 18% p.a., she would pay no ongoing fees, but she would pay $252 in interest overall, with monthly repayments of $271.

In this example, the StraightUp card is cheapest, costing $240. The traditional credit card comes next, costing $12 more over the year. Neo is last again, costing $24 more.

      Features

As you can see, how much you end up paying out on each card really depends on how you use it. If you always pay off your balance, you can essentially pay nothing in interest or fees by opting for a traditional no annual fee credit card. On the other hand, if you rarely use your card, you could end up spending more on a traditional card option if you choose a card with an annual fee over a no interest card.

What about features? Both the StraightUp Card and Neo keep it pretty basic. However, if you use it every month, you will be paying anything between $120 and $240 in fees each year for the StraightUp Card, and between $144 and $264 per year for the Neo.

If you were to compare that level of fees to a traditional card, what features could you expect?

• • With the American Express Platinum Edge Card, you would pay an annual fee of $195 to receive $200 travel credit to spend at American Express Travel. Other perks include complimentary travel insurance and smartphone screen cover.

    You could also earn points on the Amex Membership Rewards program at a rate of 3 points per $1 at supermarkets and petrol stations, 2 points per $1 spent on purchases in a foreign currency, and 1 point per $1 on all other purchases.

    Assuming a $1,500 monthly spend at supermarkets and $1,500 spent elsewhere, that would net you 6,000 points per month, or 72,000 points per year. Redeeming those points for gift cards, you could get a $350 Coles Myer gift card for 70,000 points. Alternatively, you could enjoy even more value by choosing to wait to book travel once borders open up.

 

• An alternative option could see you applying for a Citi Rewards Credit Card, paying out an annual fee of $99 in the first year, and $199 per year thereafter. After spending $3,000 on the card within the first 90 days, you will receive 100,000 bonus Velocity points.

  Day-to-day, the card earns 1 Citi point per $1 on all eligible purchases, while offering access to perks such as complimentary purchase covers and travel insurance, exclusive cashback offers, and a personal concierge service.

  Using that intro bonus, you could fly two return trips from Melbourne to Cairns for 25,000 Velocity Points each way, valued at $179. This offers a value of $716. However, waiting until international travel opens up, you could likely get more value from your bonus points.

  On a $3,000 monthly spend, you would earn 3,000 Citi points, equating to 36,000 points in a year. This could be spent within the Citi program to pay down your annual fee or purchases, to pay for travel, or alternatively, to convert to partner airlines, such as Velocity. Converting 36,000 Citi points would give you 14,400 Velocity Points.

Pros and Cons

Time to get into those pros and cons. What benefits and drawbacks can you expect from a ‘no interest’ credit card?

      Pros

• You won’t pay interest on your balance.
• With a simple fee structure, you will know exactly how much you will pay out each month.
• If you don’t use your card and you don’t have a balance, you won’t pay a monthly fee for that statement period.
• You won’t pay late fees.
• You won’t pay currency conversion fees on purchases made overseas or with online international retailers.
• With credit limits restricted to $1,000, $2,000 or $3,000, you can minimise potential overspending and the resulting issues with debt.
• With Neo, you can benefit from cashback opportunities via CommBank Rewards.
• If you are trying to minimise overspending or spending on gambling, these cards could help by limiting cash advances and gambling transactions.

      Cons

• With a monthly fee structure, you may not realise how much you are actually paying out in fees over the year.
• Depending on your spending style and repayment habits, you may end up paying more in fees than you would in interest with a traditional credit card.
• If you opt for the StraightUp Card, you cannot add an additional cardholder to your account.
• May not suit cardholders looking for a higher credit limit.
• You won’t earn rewards on your spending.
• You won’t benefit from the same perks offered on traditional credit cards with a similar cost in fees.
• Cash advances are blocked.
• Gambling transactions are blocked.
• There are no balance transfer options on these cards.

 

Photo source: Getty Images