What are the interest rates on store accounts?

Opening a store account is one of the easiest ways to build your credit score. Not surprisingly, a recent report by the National Credit Regulator (NCR) found store accounts to be among the most popular credit types for South African consumers - ...

The report also found that consumers prioritise store card repayments over any other type of debt.

But what are the costs involved with this type of credit?

We investigated various store accounts, their interest rates and fees

The results indicate that these tend to vary widely.

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Interest Rates

According to the National Credit Act (NCA), the maximum allowable interest rate for a credit facility is 17.5% per annum. This is the sum of the repo rate, which is currently 3.5%, and the maximum annual interest rate, which is 14%.

Most stores we investigated confirmed that they indeed charge 17.5% interest on their credit accounts. Woolworths, however, noted that they never charge more than 7.5% interest - an impressive 10% less than the prescribed rate. Thus, we found Woolworths to be the best choice when it comes to interest rates.

Foschini noted that, in order to determine the amount of interest you’d pay, a full credit assessment will apply. This is used to determine the level of risk you would represent. As part of the process, they would check your credit payment history, debt-to-income ratio, credit usage, whether there are any defaults or judgments against you, and whether you’re under debt counselling or administration.

Foschini also noted that your interest would depend on the payment plan you choose. Most of the stores offer a six-months-interest-free option. However, for you to benefit from this plan, your account would need to be up to date. Payment must be made by the first day of every month, failing which, interest applies.

If you choose a plan with a longer payment term, you’d pay lower instalments, but interest would apply immediately.

It’s important to note that at both Foschini and Truworths, the interest rate is not fixed. These stores give their clients 30 days’ notice of an imminent interest rate change.

The table below illustrates the interest rate, monthly service fee and initiation fee of store accounts with five clothing retailers.

Name of store or group	Interest rate	Monthly or annual fee	Initiation fee
Mr Price Group (Mr Price, Mr Price Home, Mr Price Sport, Sheet Street, Mr Price Money, Miladys, Yuppiechef, Power Fashion)	17.5%	R15 per month	R30
Truworths Group (Truworths, Uzzi, Truworths Man, Earth Child, Naartjie)	17.5%	An annual fee is communicated in writing - this can be waived at the store’s discretion	None
Woolworths	7.5% of the balance due	Up to R38	R77
Cape Union Mart Store (Keedo, Poetry, Old Khaki, Tread+Miller)	17.5 %	Up to R68 depending on the balance on your account	R150
The Foschini Group (Foschini, Markham, Archive, Fabiani, Sterns, Donna, Sportscene, Exact)	17.5%	R22 when there’s a balance on your account	None

Interestingly, none of the store account brochures stipulated the interest charged and/or other fees. We had to request this information directly from the staff on duty.

The Cape Union Mart store accounts are managed by RSC. The monthly service fee and initiation fees vary, depending on the store and your credit profile. The call centre was, however, able to confirm maximum rates and we have listed these.

Monthly service fee

A monthly service fee is an amount that you pay the store to administer your account. Foschini says if you don’t pay this fee on time, it will be added to your outstanding balance and you’ll be charged interest. This fee may increase over time, and the frequency may change from monthly to annually, says Foschini.

According to the NCA, the monthly service fee for a store account should never exceed R60. However, when we spoke to the sales assistant from Cape Union Mart, we were told that their customers pay up to R68, which is R8 more than the prescribed fee. The assistant noted that the service fee increases according to account balance.

Initiation fee

The NCA says, “An initiation fee must only be charged when a new credit agreement is established with a consumer, and must not be charged on a transactional basis where there is no new credit agreement.”

Creditors are allowed to charge up to R165 per credit agreement, plus 10% of the amount in excess of R1,000 as an initiation fee. However, this should never exceed R1,050.

As seen in the table above, some stores don’t charge an initiation fee, and some charge much less than the NCA limit. Cape Union Mart charged just R15 short of the limit.

Final tips

Used properly, store cards can present significant advantages. Here are some tips to help you make the most of them.

Take advantage of interest-free plans. Only apply for a store card if you qualify for six months of interest-free credit, and make sure you keep up with your monthly payments. If you fail to do so, you will be charged interest.
Be aware of your credit score. If you’re trying to build your credit score, a store account may be a good idea. However, if you have a damaged credit score, your application may be rejected, or you may only qualify for an interest-bearing plan. Stores typically only offer interest-free accounts to applicants with good credit scores, so be sure to find out what yours is in advance.
Don’t overspend on your store card. Try to keep your spending to a minimum, and don’t go overboard with luxury purchases. Many stores charge monthly service fees on top of the interest you pay on outstanding balances.
Consider alternatives. While a store card is potentially an easy way to build your credit score, you should consider alternatives, especially if you don’t qualify for an interest-free plan. For example, a cell phone contract can be less expensive and you won't be charged interest.

For more information on the factors that impact your credit, click here.