Credit card interest. You may not want to think about it. But if you’re applying for a new card or waiting for it to arrive, the greater your understanding of how interest is calculated, the greater your chance of avoiding it altogether.

Give me the main points

  • Understanding the difference between interest types could save you money.
  • Interest on purchases is avoidable by paying off your closing balance.
  • Cash advances are expensive. Use them as a last resort.
  • Don’t get caught out when a balance transfer or special rate ends.
  • When a fee is charged, it’s treated like any other purchase. Therefore, interest is applied.

Identifying different types of interest

You’ll pay different types of interest depending on how you use your credit card. Some are charged from the moment of transaction, while others come with interest-free days. Knowing and understanding the difference between these types may save you money.

There are five different types of credit card interest:

  1. Purchase interest.
  2. Cash advance interest.
  3. Balance transfer interest.
  4. Special or introductory rate interest.
  5. Fee interest.

Paying interest on things you buy

We apply purchase interest whenever you buy something, be it at a supermarket or online retailer. This is usually the easiest type of interest to avoid, especially if there’s an interest-free period. This is because by paying your credit card’s full closing balance by the due date every month, you won’t pay any purchase interest at all.

Paying off your full closing balance each month means you can take advantage of any interest-free period offered on your card (usually up to 44 or 55 days). An interest-free period includes the 30 days of your statement period plus an additional 14 or 25 days to pay your statement.

Withdrawing money and the interest charged on it

We charge cash advance interest whenever you withdraw (or “advance”) cash off the card by selecting ‘credit’ at the ATM. This can be useful if you need quick or emergency cash, but it’s an expensive way to do it. This is because there’s no interest-free period.

We calculate interest from the moment you make the withdrawal. Cash advance interest will continue to accrue until the account is paid in full. Plus the rate itself is higher than the usual purchase rate.

Other types of cash advances

There are other transactions also considered cash advances. These include:

  • transferring cash from your credit card to an account—this doesn’t include using a credit card via BPAY as these are considered normal purchases (and therefore will be charged the purchase interest rate)
  • purchasing travellers’ cheques or gift cards
  • loading value or buying a prepaid or stored-value card
  • transactions for gambling purposes
  • paying utility bills over the counter at banks, other financial institutions and post offices.

Your statement will include your cash advances and the interest that’s been charged for them.

Enjoying a special rate

Balance transfer interest rates vary depending on the card you choose and any specials we’re offering. From time to time we offer a reduced balance transfer interest rate known as a ‘Special promotion’ for a certain amount of time known as the ‘Promotional period’. Once the Promotional period ends, the special promotion balance transfer rate, reverts to the cash advance rate.

Interest free days on purchases are not available while you have a balance transfer. So remember, if the point of doing a balance transfer is to give yourself some breathing room to pay off your card, don’t keep using it.

Like a Special promotion balance transfer, we may also offer Special promotions on purchases with a lower interest rate for the Promotional period. Once the Promotional period ends, we’ll apply the standard purchase interest rate applicable to your card.

Accruing interest on fees

The final type on interest you may encounter is interest on credit card fees. We treat credit card fees (like the card’s annual fee, for example) the same as purchases.

Because of this, your interest-free days will apply to fees, too; but after this period, they’ll attract the standard purchase interest rate.

Important information

Credit cards issued by National Australia Bank Limited. © 2016 National Australia Bank Limited ABN 12 004 044 937 AFSL and Australian Credit Licence 230686

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