Credit card fees 101: What you need to know to help choose a suitable credit card

Credit card fees vary widely across lenders and even between cards from the same lender. If you want to get a suitable card for your situation while minimising your expenses, it's a good idea to get an understanding of the different kinds of fees you might be charged and when you could be charged them.

Here we’ve described some of the most common fees to help dispel some of the confusion that surrounds credit card fees.

Lenders charge credit card fees, which can help ensure they generate revenue from the credit products they’re delivering, and to compensate themselves for the risk and activities they take on in providing credit.

That means lenders may charge some fees to all customers while others are may only be charged for actions that are considered more risky or require additional administration. These are some of the more common fees of both kinds.

When you pay for a purchase on credit you’ll eventually have to pay the amount back plus a certain percentage of the price as interest (with the exception of any interest free period). This is the same as you would do for any other personal or home loan. These payments can form part of your card’s monthly fees.

All credit cards charge interest. Some begin charging interest immediately. Others offer interest-free periods and only begin charging interest from the payment due date.

Note, the interest-free period starts from your account’s due date, not from the date of your purchase. For example, if your card offers an interest-free period of 55 days, and you buy something five days before your repayment due date, you’ll only have five days to repay the credit before you’re charged interest.

Many cards, especially those that offer perks like rewards points, will charge an annual fee. Cards with a few basic features tend to charge lower fees. Cards with numerous features may charge fees at the higher end of the scale. Some business credit cards may also charge higher fees.

If you’re not going to use all the features of a card, there’s a good chance you could find a card that has less features with a lower annual fee.

If you withdraw cash using your credit card, such as from an ATM, that’s called a cash advance, and it is considered to be a different activity compared to making a purchase directly with your card. If you transfer funds from your credit card to another account, you’re essentially doing the same thing and that’s often also considered a cash advance.

Both activities will usually attract a cash advance fee, usually of a few percent.

Cash advances may also attract a different interest rate to standard credit card transactions. If your normal transactions are subject to an interest-free period, your cash advances will typically be exempt and your lender will usually begin charging interest immediately after you make your withdrawal. The interest rate for a cash advance may also be higher than the interest rate you’re charged for purchase transactions.

If you don’t make your compulsory repayments by the due date, you’ll usually be charged a late payment fee.

If you use your card overseas, you could be charged a fee as part of every transaction. But you don’t have to be physically overseas to be charged an international transaction fee. If you buy something online from an overseas company, you may still have to pay an international transaction fee.

In addition to any international transaction fee, you may also be charged a currency conversion fee if you need to pay for a purchase in a currency other than Australian dollars. As the name suggests, this fee is charged when the credit card payment processor (such as Visa or MasterCard) converts your money into a different currency. Sometimes it may be a separate fee. However, some lenders include it within the international transaction fee.

If you have a credit card and then find another card with a better deal, you might consider shifting your debt (balance) from the first card to the second. Some cards will charge an administration fee for transferring the balance.

Many credit card providers won’t let you spend more than your credit limit. If you try, the transaction may be declined. Other lenders will allow you to spend more credit than your card is limited to, but will charge a fee when you do so.

It’s a good idea to speak with your credit provider and ensure you are on a credit limit that suits your spending needs.

Retailers and service providers generally have to pay higher fees to accept credit cards than they do to accept debit cards, according to the Australian Competition and Consumer Commission. So, many businesses recoup those costs by charging a credit card surcharge.

Most surcharges range between 0.5 per cent and 2 per cent and in Australia, businesses can only charge a surcharge that covers their credit card processing fees. This fee is not charged by your lender.

In some cases, it’s possible to share your credit account with someone else, like your partner or child. Some providers offer the option of adding additional cardholders for no additional cost, while others may charge a fee for this.

If you think you’ve been charged the wrong fee or the wrong amount, the first thing to do is identify the origin of the charge. Was it a business that you bought from, or the credit card provider?

If the error was related to a purchase, check your credit card statement and compare it with your receipt. If the error is related to your lender’s responsibilities, for example, and you think you were charged the wrong amount of interest, check your terms and conditions to be sure you understand what fees should be charged.

If you believe you’ve been charged incorrectly after doing those checks, start by talking to the responsible party — the business or your lender. In most cases, if proven correct, they’ll fix the error as soon as they’re made aware of it.

If you’re not satisfied with the outcome, you might choose to raise a complaint through the lender’s internal dispute resolution channels. If you remain unsatisfied, you might decide to raise it with the Australian Financial Complaints Authority, who provide fair, free and independent dispute resolution for financial complaints.

All credit cards charge a form of fees. You won’t necessarily have to pay every fee for a card, but it’s good to understand what you could be charged, so you can avoid unnecessary fees.

Here are some of the most common credit card fees:

• Interest
• Annual fee
• Cash advance fee
• Cash advance interest
• Late payment fee
• International transaction fee
• Currency conversion fee
• Balance transfer fee
• Over limit fee
• Extra cardholder fee

Now you’ve got an understanding of what fees lenders may charge, you could compare a range of credit cards, and be more confident in your knowledge about what fees you can try to avoid and which fees you should look to minimise. Our handy credit card comparison guide can help you do just that.