Credit Card Fees Explained

Credit card fees in Australia can be confusing, but understanding them is key to managing your finances wisely. Credit card companies charge various fees to cover their costs and make a profit. These can include annual fees, interest charges, and transaction fees.

Types of credit card fees in Australia

Credit card fees in Australia can add up quickly if you're not careful. Banks and card issuers charge different types of fees that can impact your wallet depending on the type of credit card.

Annual fees

Many credit cards charge a yearly fee for the privilege of using the card. This fee covers the cost of card features and perks. Basic cards often have low or no annual fees, while premium cards with lots of extras can charge hundreds of dollars per year.

Some banks waive the first year's fee as a sign-up bonus. You might also get the fee waived if you spend a certain amount on the card each year. It's worth asking your bank if they'll drop the fee, especially if you're a long-time customer.

Annual fees range from $0 to over $400. The average is about $150 per year. Think about whether the card's benefits are worth the fee before you sign up.

Cash advance fees

Taking cash out with your credit card is pricey. You'll pay a cash advance fee, which is often a percentage of the amount withdrawn. This fee is usually 2-3% of the cash amount, with a minimum $2-$3 charge.

On top of that, cash advances start accruing interest right away, often at a higher rate than normal purchases. There's no interest-free period like you get with regular spending.

Avoid using your credit card for cash unless it's a real emergency. The fees and interest make it a very expensive way to get money.

Foreign transaction fees

Using your card overseas or buying from foreign websites often incurs a fee. This is typically 2-3% of the purchase amount. Some cards marketed for travel might waive this fee.

The fee applies to purchases in foreign currencies, even if you're still in Australia. Be careful when shopping on international sites - you might be charged in their local currency.

If you travel a lot or shop online from overseas stores, look for a card with no foreign transaction fees. It could save you a bundle.

Late payment fees

Missing your credit card payment deadline can be costly. Most banks charge a late payment fee, which is often around $20-$30. Some cards have higher fees of up to $35 or more.

Late fees are easy to avoid if you're organised. Set up automatic payments or reminders to pay on time. If you do slip up, call your bank quickly. They might waive the fee as a one-off gesture of goodwill.

Remember, late payments can also hurt your credit score. This could make it harder to borrow money in the future.

Interest charges

Credit card interest can be a major expense if not managed carefully. Interest charges apply when you don't pay off your full balance each month.

Interest free periods

Many Aussie credit cards offer interest-free periods of up to 44 or 55 days. This grace period starts on the first day of your billing cycle and runs until your payment due date. You won't pay interest if you clear your full balance by the due date.

You must pay off your monthly statement balance to keep your interest-free days. If you only make the minimum payment, you'll be charged interest on new purchases from the transaction date.

Calculating interest

Credit card interest is usually charged daily and added to your account monthly. The interest rate is shown as an annual percentage rate (APR), but it's divided by 365 to get the daily rate.

Here's how it works:

1. Multiply your daily balance by the daily interest rate.
2. Add up these amounts for each day in the billing cycle.
3. The total is the interest charged for that month.

For example, if you have a $1,000 balance and a 20% APR:

• Daily rate: 20% ÷ 365 = 0.0548%
• Daily interest: $1,000 x 0.0548% = $0.55
• Monthly interest: $0.55 x 30 days = $16.50

Fee waivers and reductions

Credit card providers often offer ways to reduce or waive fees. You can save money by knowing how to negotiate with your bank and take advantage of loyalty programs.

Negotiating lower fees

You can ask your bank to lower or remove your credit card's annual fee. Call the customer service number on the back of your card. Explain that you're thinking about cancelling due to the fee. The bank might offer to waive or reduce it to keep you as a customer.

Be ready to discuss:

• How long you've been a cardholder.
• Your spending habits.
• Your payment history.

If they don't budge, ask about downgrading to a no-fee card. This lets you keep your account open without paying yearly charges.

Loyalty programs and benefits

Many credit cards have loyalty programs that can offset annual fees. These often include:

• Reward points for spending.
• Travel insurance.
• Purchase protection.
• Extended warranties.

Some cards waive the first year's fee as a sign-up bonus. Others give you a fee credit if you spend a certain amount each year.

Check if your card offers:

• Complimentary flights or travel credits.
• Hotel stays.
• Airport lounge access.

Legal protections and regulations

Credit card users in Australia have strong legal safeguards. These protections come from national laws and regulatory guidelines that aim to promote fair practices and protect consumers.

The National Credit Code

The National Credit Code sets rules for credit card providers. It's part of the National Consumer Credit Protection Act 2009. This law requires lenders to:

• Give clear info about fees and interest rates.
• Check if you can afford the credit before approving a card.
• Provide regular statements.
• Respond to hardship requests.

The code also bans unfair contract terms. It limits how much banks can charge for late payments. Lenders must work with you to find a solution if you can't make payments.

Australian Securities and Investments Commission (ASIC) guidelines

ASIC oversees credit card practices. Their guidelines focus on:

• Responsible lending.
• Clear fee disclosure.
• Fair marketing.

ASIC requires banks to assess your income and expenses before giving you a card. They must ensure you can pay off the credit limit in 3 years.

Banks can't send unsolicited credit limit increase offers. They must give you 45 days' notice before changing your contract.

ASIC also set rules for balance transfer offers. Banks must clearly show the revert rate after the intro period ends.