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debt The R104 million great ‘gold card swindle’
  Virgin Money research shows that for credit card holders ‘all that is gold does not glitter’ – Gold credit card holders pay more in annual fees yet enjoy few additional benefits

Research conducted by Virgin Money has revealed that South African gold credit card holders are collectively topping up their banks’ profits by R104 million every year, under the false impression that they are paying for a better ‘deal’ than entry-level blue or silver credit card holders.

The research revealed that although gold credit card holders pay on average 38% more in annual card fees, in return they receive insignificant additional benefits in terms of the interest rates charged for both positive balances and negative balances.

Virgin Money carried out the investigation by comparing the entry-level and gold credit card offerings of six credit card issuers. Its research looked at annual card fees, required minimum annual income, interest earned on a positive balance, and interest paid on a negative balance.

The results show that the average annual fee for an entry-level credit card is R137,28, and for a gold credit card is R189,44. This is a R52,16 difference and, with an estimated two million gold credit cards in circulation in South Africa, equates to over R104 million of a ‘gold card rip-off’.

And while the banks’ glossy marketing materials try to convince consumers that gold credit cards offer better interest rates on both debit and credit balances, the research illustrates that the differences for both rates are negligible.

On a positive balance, the average rate for entry-level cards is 2,58% and on gold cards it is 2,63% - an indiscernible difference of 0,05%. The average rate for a negative balance on an entry-level card is 20,32% and on a gold card it is 19,94% - a difference of 0,38%.

To put this into perspective - a gold card holder with R5000 owing on his or her credit card ends up paying R1,58 less in interest a month than an entry-level card holder, and would earn 21 cents more in interest a month if they had a R5000 positive balance!

Some credit card providers would argue that cardholders are able to access higher amounts of credit with a gold card. However, the research also found that most banks were willing to give the same (or higher) credit limits to someone applying for an entry-level credit card as they would have obtained on a gold credit card. The credit limit was solely based on consumers’ income and their creditworthiness.

Most banks in South Africa tend to assign status to credit cards by naming them after precious metals like silver, gold, platinum and even titanium. They have marketed these cards in clever ways that create the perception that the cards are something to aspire to, that they will afford the cardholder a higher status and better benefits than entry-level card holders.

Using phrases like "…your hard work has paid off and we recognise this by providing you with all the benefits of having a gold credit card…" and "…carrying superior benefits that your financial standing demands…" or "…full credit facilities for the status you’ve earned…", banks have nurtured the perception that ‘coloured’ credit cards are a fashionable status symbol.

"At the end of the day, they’re still made of plastic and the ‘benefits’ of owning these multi-coloured cards don’t seem to glitter as brightly as their cards do. And, trust us, putting a gold coat of paint on your credit card doesn’t cost the banks R52,16 more than blue or silver," says Gavin Muller, credit product director at Virgin Money.

Additional research that Virgin Money carried out for this purpose involved calling the various credit card providers’ call centres and asking the agents for the tangible differences between gold and entry-level credit cards.

The results ‘from the horse’s mouth’ confirmed that gold cards are nothing more than a status symbol and that there are very few differences between gold cards and entry-level cards, despite annual card fees on gold cards being 38% higher.

The fact is that annual credit card fees are no longer justifiable. It is ridiculous that credit card providers are still charging customers just to carry around their particular brand of credit card, and even more so if it is a gold card.

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