A man pointing to credit card interest

Credit Card Interest Rates

Understanding credit card interest rates will help you choose the right card for your financial needs.

Most credit card issuers charge interest—after all, it’s the main way they generate revenue. However, a high purchase rate on a credit card can end up costing you, the consumer, a whole lot of money. With this in mind, if you want to make the right choice when looking for credit cards, it’s vital you compare interest rates and go for the most competitive deal.

What are credit card interest rates?

Interest refers to the fee levied by credit card issuers for using their card. It is normally expressed as an annual percentage rate (APR). You will be charged either the purchase interest rate or the cash advance interest rate. The purchase interest rate applies when you use your credit card for making payments at retail outlets or online. The cash advance interest rate is applied on your account when you make withdrawals through ATM machines. Most credit card companies charge a higher cash advance rate than the card’s purchase rate, so keeping away from cash advances will assist in maintaining the size of your account.

How do credit card interest rates work?

The interest rate on credit cards is normally set every year, but most credit card companies calculate interest on a daily basis and levy the charges monthly. For instance, to determine your credit card interest amount, the daily outstanding balance is multiplied by the daily interest rate on your credit card, and then added together to give the monthly interest due. The daily interest rate is calculated by dividing the APR by 365 days. Most credit card companies offer interest-free days to their customers, so you can take advantage of this feature to make the most out of your card. If you don’t pay your credit card balance in full every month, your interest will be compounded and may send you into a financial mess.

How is interest calculated?

It depends on what card you have, the nature of the transactions you make, and when you make the payments. Interest is calculated on your account's outstanding balance on a daily basis. For example, you make a purchase for $50 on the first day of your statement period. Interest is calculated on the $50 balance for each day from the date of the transaction until it is repaid in full. Interest is then added daily to calculate your monthly interest amount.

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What are the types of credit card interest rates?

  • Fixed interest rate. This will not change unless the credit card company sends an advance notification to its cardholders regarding a possible rate change.
  • Variable interest rate. This rate can fluctuate and the credit card company does not have to send advance notification of the rate change.
  • Purchase interest rate. This is the interest you are charged when you use your credit card for making payments in retail outlets or online.
  • Cash advance interest rate. This is the interest rate you are charged when you use your credit card for withdrawing cash from ATMs.
  • Balance transfer interest rate. This is the interest rate you are charged when transferring an existing credit card debt to a new card.
  • Compound interest. This is the interest rate charged on interest when you have accumulated outstanding balances on your credit card.
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How to compare credit card interest rates

  • Benefits. You should not choose a credit card just because it provides an attractive sign-up bonus or because you will earn free trips. You shouldn’t fall victim to a one-time bonus, but instead look for long-term benefits of using the card. A credit card offering a low interest rate or promotional interest rate could be ideal for your needs.
  • Customer experience. Do your homework to check the experience of other customers with your preferred credit card. You can check the user feedback on online forums, blogs, social media and in other places. Does the credit card company keep its word on its stated interest rate? Does it have interest-free days?
  • Check interest rates. Some credit card companies levy interest costs from the date you start using the card while others start applying interest from the billing date. You should check the interest rates available to ascertain what suits your needs and preferences.
  • Read the fine print. Find out the suitable cycle of repayments, penalties and other charges that may be associated with using the card. Do not choose a credit card simply based on the indicated interest rate, as the card company may also charge hidden fees. Read the fine print closely.

Compare credit cards

Rates last updated December 5th, 2016
Purchase rate (p.a.) Balance transfer rate (p.a.) Annual fee Interest Free Period
ANZ Low Rate Platinum Credit Card
$250 Back plus 0% p.a. for the first 6 months on purchases from approval.
0% p.a. for 6 months (reverts to 13.49% p.a.) $99 p.a. Up to 55 days on purchases Go to site More info
NAB Low Fee Card
Enjoy a low introductory rate of 0% p.a. on balance transfers and purchases for 15 months.
0% p.a. for 15 months (reverts to 19.74% p.a.) 0% p.a. for 15 months with a one off 3% balance transfer fee $30 p.a. Up to 44 days on purchases Go to site More info
ME Bank frank Credit Card
A low interest rate on purchases and cash advances with no annual fee charge.
11.99% p.a. $0 p.a. Up to 55 days on purchases Go to site More info
American Express Essential Credit Card
Receive a $50 credit on eligible spend and get Smartphone screen insurance combined with a no annual fee for life card. Also enjoy a 0% p.a. balance transfer rate for 12 months.
14.99% p.a. 0% p.a. for 12 months with 1% balance transfer fee $0 p.a. Up to 55 days on purchases Go to site More info
NAB Low Rate Credit Card
The NAB Low Rate Card offers 0% p.a. on purchases and balance transfers for 15 months. This card also comes with a low annual fee.
0% p.a. for 15 months (reverts to 13.99% p.a.) 0% p.a. for 15 months with a one off 3% balance transfer fee $59 p.a. Up to 55 days on purchases Go to site More info
St.George Vertigo Visa
Introductory offer of 0% p.a. for 18 months on balance transfers and 1% p.a. for 12 months on purchases, plus a low annual fee.
1% p.a. for 12 months (reverts to 13.24% p.a.) 0% p.a. for 18 months $55 p.a. Up to 55 days on purchases Go to site More info
Westpac Low Rate Card
A simple low interest rate card featuring a low ongoing rate on purchases, up to 55 days interest-free on purchases and a low annual fee.
1% p.a. for 12 months (reverts to 13.49% p.a.) 0% p.a. for 16 months $59 p.a. Up to 55 days on purchases Go to site More info
St.George Vertigo Platinum
A platinum card with a balance transfer offer of 0% p.a. for 18 months and an introductory purchase offer of 1% p.a. for 12 months with an annual fee waiver for the first year.
1% p.a. for 12 months (reverts to 12.74% p.a.) 0% p.a. for 18 months $99 p.a. Up to 55 days on purchases Go to site More info
Coles Low Rate MasterCard
A low rate MasterCard with a competitive rate on purchases and a low annual fee.
12.99% p.a. 0% p.a. for 6 months $49 p.a. Up to 62 days on purchases Go to site More info
Bank of Melbourne Vertigo Visa Credit Card
Enjoy a low annual fee combined with 0% p.a. balance transfer offer for 18 months and 1% p.a. for up to 12 months on purchases.
1% p.a. for 12 months (reverts to 13.24% p.a.) 0% p.a. for 18 months $55 p.a. Up to 55 days on purchases Go to site More info
Bank of Melbourne Vertigo Platinum
A platinum card with a low balance transfer offer of 0% p.a. interest for 18 months and 1% p.a. for 12 months on purchases combined with complimentary insurance covers.
1% p.a. for 12 months (reverts to 12.74% p.a.) 0% p.a. for 18 months $99 p.a. Up to 55 days on purchases Go to site More info
Australian Military Bank Low Rate Visa Credit Card
Enjoy a low interest rate of 10.99% p.a. on purchases, combined with a balance transfer offer of 0% p.a. for 12 months and a low annual fee.
10.99% p.a. 0% p.a. for 12 months $49 p.a. Up to 55 days on purchases Go to site More info
ANZ Low Rate
$100 Back plus 0% p.a. for the first 6 months on purchases from approval.
0% p.a. for 6 months (reverts to 13.49% p.a.) $58 p.a. Up to 55 days on purchases Go to site More info
BankSA Vertigo Visa
Enjoy a low balance transfer offer of 0% p.a. for 18 months and a low ongoing purchase rate from BankSA.
1% p.a. for 12 months (reverts to 13.24% p.a.) 0% p.a. for 18 months $55 p.a. Up to 55 days on purchases Go to site More info
Citi Clear Platinum Card
Enjoy 0% p.a. for 9 months interest-free purchasing and 0% p.a. for 9 months on balance transfers.
0% p.a. for 9 months (reverts to 14.99% p.a.) 0% p.a. for 9 months $99 p.a. Up to 55 days on purchases Go to site More info
BankSA Vertigo Platinum
Experience Platinum card benefits with complimentary insurance policies and 24/7 Visa Platinum Concierge Service. Get 0% p.a. for 18 months on balance transfers and 1% p.a. for 12 months if you apply by 4 January 2017.
1% p.a. for 12 months (reverts to 12.74% p.a.) 0% p.a. for 18 months $99 p.a. Up to 55 days on purchases Go to site More info
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Pros and cons

Pros

  • Interest-free days. Most credit card companies will offer a grace period in which you can make purchases without paying interest. You can take advantage of this to enjoy the full benefits of your credit card.
  • Minimal transfer cost. If you want to transfer your credit card debt into a single card, most credit card companies will offer you the service at very minimal rate of interest.
  • Low-interest-rate credit cards. Several credit card companies are now offering low-interest-rate credit cards that will ensure you maximise your card benefits. You can contact us here at finder.com.au if you need a low-rate credit card.

Cons

  • Compound interest. With the power of compounding interest, a small credit card debt can soon increase to something much larger.

Things to avoid

When applying for a credit card, it’s important that you read the fine print to understand all the terms and conditions of your agreement. If you don’t take the time to understand the fees and charges associated with using your card, you could end up with a nasty financial surprise in the future. Do your research and read all paperwork thoroughly.

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Frequently asked questions

What does APR mean?

APR is the acronym for Annual Percentage Rate, which is the standard way of expressing the cost of credit as an annual percentage.

What is an interest charge?

An interest charge refers to the interest fee levied on your credit card account. This can be in the form of a purchase interest rate, cash advance interest rate or balance transfer interest rate.

How do I get a competitive interest rate in the market?

If you contact us here at finder.com.au, we will be able to direct you on how to access the most competitive interest rates in Australia.
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Was this content helpful to you? No  Yes

American Express Essential Credit Card
American Express Essential Credit Card

Interest rate

14.99

Annual fee

0
ME Bank frank Credit Card
ME Bank frank Credit Card

Interest rate

11.99

Annual fee

0
HSBC Platinum Credit Card
HSBC Platinum Credit Card

Interest rate

19.99

Annual fee

149

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2 Responses to Credit Card Interest Rates

  1. Default Gravatar
    Karu | May 26, 2013

    I have a Diamond MasterCard. My balance is $2700. I have paid $2500 on due date but charged $160. Is it correct? Why has this happened?

    • Staff
      Jacob | May 26, 2013

      Hi Karu. It’s difficult to speculate why you’ve been charged this fee. Best to consult your credit card statement when it next arrives, or you can check your online banking facility to see why you’ve been charged this fee. If you let us know the name of the fee, we can offer some insight into why it has been charged, how to avoid it in the future, and maybe how to dispute it with the lender. Jacob.

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