A man pointing to credit card interest

Credit Card Interest Rates

Learn how credit card interest rates work so you can find a card that suits your needs.

When you use a credit card, you're essentially borrowing money from the account's credit limit. So just like any other loan, interest may be charged on the balance. How and when this interest is charged can have a huge impact on what you'll pay for the use of your credit card.

To make sure your credit card works for you, here you'll find answers to the most common questions about interest, including the different rates that may apply and when it's charged. We also look at how you can compare credit card interest rates and take advantage of interest-free days so you can avoid interest charges.

What are credit card interest rates and how do they work?

Interest rates are a type of fee that's charged when you borrow money. With credit cards, interest rates are calculated as a percentage of your balance and shown as an annual or per annum figure. For example, a card could have an interest rate of 9.99% p.a. (per annum) or 21.99% p.a.

Most credit cards also have different interest rates for different types of transactions, with the most common being a purchase rate and a cash advance rate. You can learn more about different types of interest rates below.

How is credit card interest calculated?

The interest rate on credit cards is normally shown as an annual figure. But most credit card companies calculate interest on a daily basis and then add the charges to your account at the end of each statement period. To determine your credit card interest amount, your daily outstanding balance is multiplied by the daily interest rate on your credit card. These daily calculations are then added together at the end of the statement period to get the total interest due. The daily interest rate is calculated by dividing the APR by 365 days.

Compound interest costs

The way credit card interest is charged is known as "compound interest" because it is calculated daily. This means that you could end up paying interest on your interest charges. The good news is that you can cut down on interest costs any time you make a repayment, because that will also affect the daily interest calculation.

Types of credit card interest rates

ccf-interest-woman-250x250Here are the most common types of interest rates you'll find on credit cards:

  • 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 or cash equivalent transactions, like buying gift cards or gambling.
  • Balance transfer interest rate. This is the interest rate you are charged when transferring an existing credit card debt to a new card.
  • Promotional interest rate. Many credit card companies offer new customers a promotional interest rates for purchases and/or balance transfers. This promotional interest rate is only available for a limited time, with the standard interest rate applying after that. For example, a card may offer you 0% interest on balance transfers for the first 12 months. If you didn't pay off the balance transfer during the first 12 months, the standard rate for balance transfers would apply to the debt.

Even the smallest difference in credit card interest rates can have a huge impact on your account costs. So when you're looking for a new card, make sure you compare both the standard and promotional interest rates to help you find one that suits your needs.

Comparing credit card interest rates

To show you how important it is to compare interest rates, let’s say you have a balance of $1,000 on a credit card with an interest rate of 20.99% p.a. If you only made monthly payments of $50 on this debt, it would take you around 2 years and to pay off your balance and cost you about $212 in interest.

On a credit card with an interest rate of 15.99% p.a., it would still take around 2 years to pay off your balance but would cost you $153 in interest. That’s a saving of $53 compared to the card with a higher rate, which is basically another monthly repayment. The bigger the difference in rates, the greater these potential savings would be.

What else do I need to know?

As well as interest rates, make sure you consider the following when you're looking for a new credit card:

  • Interest-free days. Many credit cards offer a up to a certain number of interest-free days on purchases when you pay your account balance in full by the due date on your statement. For example, up to 55 days interest-free. This gives you a way to avoid interest charges for spending on your credit card.
  • 0% interest rate offers. If you get a credit card with a promotional 0% interest rate, it may only apply for certain types of transactions. For example, you could get 0% interest on balance transfers for 12 months but still have to pay the standard variable interest rate for purchases. There is also a range of credit cards that offer introductory 0% interest rates on both purchases and balance transfers, although standard rates will apply at the end of the promotional period.
  • Annual fee. Most credit cards charge an annual fee, which could also add to your account balance. Remember to factor this cost in when your comparing credit cards and also when you're budgeting for interest costs and repayments.
  • Other features. Many credit cards offer complimentary extras such as insurance or rewards, which could help offset the cost of the annual fee and interest charges. Just remember to weigh the value of the benefits against potential costs so you can decide if a card is worth it based on your spending habits and goals.

Compare credit cards

If you're looking for a new credit card, you can use our tables to compare your options based on interest rates. Just click on the "Purchase rate" or "Balance transfer rate" column and the table will update to show you cards with the lowest to highest rates.

Rates last updated November 20th, 2017
Name Product Purchase rate (p.a.) Interest Free Period Annual fee Balance transfer rate (p.a.) Product Description
St.George Vertigo Platinum - Online Offer
12.74% p.a.
Up to 55 days on purchases
$0 p.a. annual fee for the first year ($99 p.a. thereafter)
0% p.a. for 24 months
Platinum card benefits plus 0% p.a. for 24 months on balance transfers (with no BT fee) and $0 annual fee in the first year. Ends 13 December 2017.
Westpac Low Rate Card - Online Only Balance Transfer Offer
13.49% p.a.
Up to 55 days on purchases
$59 p.a.
0% p.a. for 24 months with 2% balance transfer fee
Take advantage of 0% p.a. for 24 months on balance transfers with a 2% balance transfer fee when you apply online by 31 January 2018.
St.George Vertigo Visa - Online Offer
13.24% p.a.
Up to 55 days on purchases
$0 p.a. annual fee for the first year ($55 p.a. thereafter)
0% p.a. for 18 months
Take advantage of 0% p.a. for 18 months on balance transfers (with no BT fee). Plus, $0 annual fee in the first year. Ends 13 December 2017.
Bankwest Breeze Classic Mastercard
0% p.a. for 13 months (reverts to 12.99% p.a.)
Up to 55 days on purchases
$79 p.a.
0% p.a. for 13 months with 2% balance transfer fee
Receive 0% interest offers on purchases & balance transfers, up to 55 days interest-free on purchases and free emergency card replacement.
Virgin Money Low Rate Credit Card
11.99% p.a.
Up to 44 days on purchases
$49 p.a.
0% p.a. for 14 months
Receive a discounted annual fee, $100 cashback when you meet the spend requirement and up to 44 days interest-free on purchases.
bcu Classic Credit Card
11.80% p.a.
Up to 55 days on purchases
$45 p.a.
Enjoy a competitive interest rate of 11.8% p.a. on purchases, plus up to 55 days interest-free on purchases.
Bankwest Breeze Platinum Mastercard
0% p.a. for 13 months (reverts to 12.99% p.a.)
Up to 55 days on purchases
$99 p.a.
0% p.a. for 13 months with 2% balance transfer fee
Receive complimentary international travel insurance, extended warranty cover and 0% foreign transaction fees.
Bank of Melbourne Vertigo Visa Credit Card
13.24% p.a.
Up to 55 days on purchases
$55 p.a.
0% p.a. for 18 months with 2% balance transfer fee
Receive up to 55 days interest-free on purchases and the protection of Verified by Visa online purchases.
NAB Low Rate Platinum Card
0% p.a. for 9 months (reverts to 13.99% p.a.)
Up to 55 days on purchases
$100 p.a.
4.99% p.a. for 6 months
A platinum card that offers 0% p.a. for 9 months on purchases. Plus 4.99% p.a. on balance transfers for 6 months.
ANZ Low Rate
12.49% p.a.
Up to 55 days on purchases
$58 p.a.
With a low minimum credit limit of $1,000, this no frills card allows you to add up to 3 additional cardholders for $0 and has Mastercard PayPass.
Bank of Melbourne Vertigo Platinum
12.74% p.a.
Up to 55 days on purchases
$99 p.a.
0% p.a. for 24 months with 2% balance transfer fee
Get a range of complimentary insurance covers, access to a 24/7 concierge and the convenience of Visa payWave contactless technology.
Virgin Australia Velocity Flyer Card - 0% Interest Offer
0% p.a. for 12 months (reverts to 20.74% p.a.)
Up to 44 days on purchases
$129 p.a.
0% p.a. for 6 months
Until 30 November 2017, save with 0% p.a. on purchases for 12 months. Plus, up to 0.66 Velocity Points per $1 spent.
American Express Essential Credit Card
14.99% p.a.
Up to 55 days on purchases
$0 p.a.
0% p.a. for 12 months with 3% balance transfer fee
Get Smartphone Screen Insurance of up to $500 when you pay for your phone or contract with your Essential Credit Card.
ANZ Low Rate Platinum
11.49% p.a.
Up to 55 days on purchases
$99 p.a.
Get $250 back to your new ANZ Low Rate Platinum when you spend $500 on eligible purchases within the first 60 days from card approval.
CUA Low Rate Credit Card
11.99% p.a.
Up to 55 days on purchases
$0 p.a. annual fee for the first year ($49 p.a. thereafter)
0% p.a. for 13 months
Offer a low minimum credit limit of $500, the ability to use Apple Pay and Android Pay and a discounted annual fee for the first year.
Greater Bank Visa Credit Card
11.95% p.a.
Up to 55 days on purchases
$40 p.a.
Same low 11.95% p.a. interest rate on purchases and cash advances, plus, up to 55 interest-free days on purchases.
NAB Low Rate Credit Card
0% p.a. for 6 months (reverts to 13.99% p.a.)
Up to 55 days on purchases
$59 p.a.
4.99% p.a. for 6 months
This card offers a low introductory rate of 0% p.a. for 6 months on purchases. Plus 4.99% p.a. on balance transfers for 6 months.
BankSA Vertigo Visa
13.24% p.a.
Up to 55 days on purchases
$55 p.a.
0% p.a. for 18 months with 2% balance transfer fee
A no-frills Visa with the protection of a zero liability policy and a 24/7 fraud monitoring service.
Australian Military Bank Low Rate Visa Credit Card
10.99% p.a.
Up to 55 days on purchases
$49 p.a.
0% p.a. for 12 months
Enjoy up to 55 interest-free days on purchases, add an additional cardholder for $0 and enjoy the convenience of Visa payWave.
Bankwest Low Rate Business Mastercard
0% p.a. for 12 months (reverts to 11.99% p.a.)
Up to 55 days on purchases
$99 p.a.
Offers an introductory 0% p.a. interest rate on purchases for 12 months. Plus, add up to 3 additional cardholders for $0.
Westpac Lite Card
9.90% p.a.
Up to 45 days on purchases
$108 p.a.
Keep credit card costs low with a maximum credit limit of $4,000 and no foreign transaction fees.
bcu Rewards credit card
12.80% p.a.
Up to 55 days on purchases
$89 p.a.
Enjoy a low ongoing purchase rate, get 0.66% cashback for every dollar spent, plus take advantage of up to 55 days interest-free on purchases.

Compare up to 4 providers

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.

Pictures: Shutterstock

Frequently asked questions

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

  1. Default Gravatar
    KaruMay 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
      JacobMay 26, 2013Staff

      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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