How your credit card interest-free period works

Information verified correct on September 28th, 2016
credit cards

Many tend to overlook the fundamental idea behind having a credit card – namely that a company lends a certain amount of money that can be paid off within a specific time period without accruing any interest. Once you understand the way the ‘interest-free’ period functions for a credit card, you can then use that knowledge to turn your credit card into a financial tool, as opposed to having to pay loads of interest to the credit card company.

Remember that there are different kinds of interest charges when it comes to credit cards, and purchase interest is only one of them. If you’re not clear on the differences between them, then it might be advisable to read up on them so you know how they function.

What is the beginning of the interest-free period?

You will often see that credit cards will advertise an interest-free time period ‘up to a certain number of days’ with all purchases. Know that not every item you purchase will be interest-free for the advertised period of time. That will completely come down to when each and every purchase was made.

For example, say your card advertises ‘up to 44 days’ interest-free on purchases. That means that the 44 day period starts along with the beginning of the credit card statement period. It then will stop at the point in which payments for any purchases during that time are scheduled as due. This means that the 44 day period (or 55 day period, whichever is in effect for your card) is comprised of the statement period for that month, which would be about 30 days depending on the month, along with the specific period you are allowed for the payment of the balance due. Based on whether your card has 44 or 55 interest-free days per cycle, it’ll mean there are 14 or 25 days allowed after the final day of a statement, respectively.

If you made your final purchase in a billing cycle on the first day of the cycle, you could end up with as much as 44 or 55 days interest-free on your purchases, or if you made it at the end of the cycle, as little as two weeks. The most vital point to remember is that all purchases made during a billing cycle will only be interest-free if the balance is paid completely by the due date for that month. Otherwise, interest will begin to accrue.

For a better understanding of this, it’s a good idea to examine the statement period and credit card payment cycle in a bit more detail. Only then can one effectively plan to use credit cards to their full benefit, and minimise unnecessary interest payments. Learn how to read your credit card statement

Payment and statement periods

Each month, credit card statements are sent informing the card holder about the current charges made to the card during the last billing cycle, and the due date for payment. All of these purchases will have occurred during the previous monthly ‘statement period’, and they will be seen near the upper part of the statement on the front page.

If you look on your statement you’ll see information about the due date for your payment. The time period from the end of the billing cycle to the due date will generally be comprised of about a fortnight (or even more than that if your card offers an interest-free period of 55 days). One good way of looking at this time period is as the “payment zone” that allows you to take full advantage of making interest-free purchases.

Note also that if a statement ended its cycle on April 2 for instance, any purchases made after that date (or during the ‘payment zone’) wouldn’t appear on a bill until the following statement is sent.

Karen with 0 percent interestExample

Karen has a credit card that offers ‘up to 44 days interest-free’ on purchases.

Remember that the interest-free time begins with the first day of the billing cycle.

The first day of Karen’s statement cycle is October 5th, and the last day of her cycle is November 5th (30 days apart). This means her interest-free period ends when payment becomes due on November 19th, 14 days later.

Say Karen wants to purchase a new computer on October 5th. This would give her a total of 44 interest-free days for full repayment without accruing interest. This scenario allows for the longest amount of time interest-free.

On the other hand, if Karen buys the same computer on November 5th, which is the closing day for that billing cycle, then she’d only have a couple of weeks available to pay the computer in full without interest, as the due date is November 19th. Again, the interest-free period is only in effect when the balance is fully paid by the due date for that bill. Remember that this includes not only purchases, but also balance transfers from other credit cards and cash advances.

interest-free-cc-diagram-01

Compare up to 55 days interest-free credit cards

Rates last updated September 28th, 2016
Purchase rate (p.a.) Balance transfer rate (p.a.) Annual fee
St.George Vertigo Platinum
A platinum card with a balance transfer offer of 0% p.a. for 20 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 20 months $99 p.a. Go to site More info
ANZ Frequent Flyer Black
Earn up to 75,000 bonus Qantas Points after you make your first eligible purchase within 3 months of card approval plus earn 1.5 points per $1 spent. Easier payments with Apple Pay.
19.99% p.a. $425 p.a. 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. Go to site More info
ANZ Frequent Flyer Platinum
Get 50,000 bonus Qantas Points after first eligible purchase is made within three months. Earn up to 1.5 Qantas Points per $1 spent on purchases.
19.99% p.a. $295 p.a. Go to site More info
Emirates Citi World MasterCard
Enjoy up to 10% off Emirates flights on your first spend when you book before 31 December 2016. Also pay a reduced annual fee for the first year.
20.99% p.a. 0% p.a. for 9 months $149 p.a. annual fee for the first year ($299 p.a. thereafter) Go to site More info
ANZ First Visa Credit Card - Exclusive Offer
Take advantage of this exclusive offer and enjoy 0% p.a. for the first 12 months on balance transfers and 0% p.a. for the first 3 months on purchases.
0% p.a. for 3 months (reverts to 19.74% p.a.) 0% p.a. for 12 months $30 p.a. 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. Go to site More info
Virgin Australia Velocity Flyer Card - Balance Transfer Offer
Enjoy a 0% p.a. balance transfer offer for 18 months and also earn 2 bonus Velocity Points in the first 3 months on everyday spend.
20.74% p.a. 0% p.a. for 18 months $64 p.a. annual fee for the first year ($129 p.a. thereafter) Go to site More info
HSBC Platinum Credit Card
Earn reward points with high credit limits, prestige services including a personal concierge service.
19.99% p.a. 0% p.a. for 15 months $149 p.a. Go to site More info
Virgin Australia Velocity Flyer Card - 0% Interest Offer
Receive 0% p.a. for 12 months on purchases, 0% p.a. for 6 months balance transfers and an exclusive $129 Virgin Australia Gift Voucher every year.
0% p.a. for 12 months (reverts to 20.74% p.a.) 0% p.a. for 6 months $129 p.a. Go to site More info
Citi Clear Platinum Card
A low rate platinum credit card with a low interest rate on purchases and balance transfers.
0% p.a. for 9 months (reverts to 14.99% p.a.) 0% p.a. for 9 months $99 p.a. Go to site More info
ANZ First Visa Credit Card
Enjoy a low annual fee, interest-free days on purchases and a low minimum credit limit.
19.74% p.a. 0% p.a. for 18 months with 3% balance transfer fee $30 p.a. 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 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. Go to site More info
HSBC Platinum Qantas Credit Card
Receive 60,000 bonus Qantas Points on eligible spend within 3 months. Enjoy access to premium benefits and complimentary insurance.
19.99% p.a. $199 p.a. Go to site More info
ANZ First Student Card
An ideal credit card for students with 44 days interest-free on purchases with $0 annual fee in the first year. Access your account on the go with the goMoney™ app.
19.74% p.a. $0 p.a. annual fee for the first year ($30 p.a. thereafter) 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 20 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 20 months $99 p.a. Go to site More info
BankSA Vertigo Platinum
Enjoy 0% balance transfer rate for 20 months and 1% purchase rate for 12 months if you apply and are approved by 29 September 2016.
1% p.a. for 12 months (reverts to 12.74% p.a.) 0% p.a. for 20 months $99 p.a. Go to site More info
BankSA Vertigo Visa
A low interest rate card with a low annual fee, a long term balance transfer offer and an introductory offer of 1% p.a. for 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. Go to site More info
Citi Rewards Platinum Card - Cashback Offer
Earn $250 cashback on eligible spend, plus enjoy 0% p.a. balance transfer offer for 12 months, discounted annual fees for the life of the card and a complimentary travel insurance.
20.99% p.a. 0% p.a. for 12 months $99 p.a. annual fee for the first year ($199 p.a. thereafter) Go to site More info
Virgin No Annual Fee Credit Card
No annual fee for the life of the card with $100 cashback and a 0% p.a. offer on balance transfers for 18 months. Spend criteria applies for cashback offer.
18.99% p.a. 0% p.a. for 18 months with 2% balance transfer fee $0 p.a. Go to site More info
28 Degrees Platinum MasterCard
Benefit from no international transaction fees on purchases, no currency conversion fees and no annual fee.
21.99% p.a. 4.99% p.a. for 6 months $0 p.a. Go to site More info
American Express Qantas Ultimate Card
Enjoy 50,000 bonus Qantas Points when you meet the minimum spend requirement and earn up to 3 Qantas Points for every $1 spent. Also enjoy a complimentary return flight every year.
20.74% p.a. 0% p.a. for 12 months with 1% balance transfer fee $450 p.a. Go to site More info
American Express Platinum Card
Receive 80,000 Membership Rewards Bonus Points when you meet the minimum spend requirement and earn up to 3 points per dollar spent. Gain access to travel insurance, $300 Platinum Travel Credit every year and access to 800 VIP airport lounges.
$1,200 p.a. Go to site More info
ANZ Rewards Travel Adventures card
Pay no overseas transaction fee on purchases and receive complimentary domestic return flight and lounge passes each year you hold the card when you spend $500 on eligible purchases within the first three months.
20.24% p.a. $225 p.a. Go to site More info
Westpac Low Rate Card
A no frills credit card with an introductory rate of 0% p.a. for 18 months on balance transfers and 1% p.a. for 12 months on purchases.
1% p.a. for 12 months (reverts to 13.49% p.a.) 0% p.a. for 18 months $59 p.a. Go to site More info
Commonwealth Bank Business Interest Free Days credit card
Take advantage of $0 annual fee for the first year. Get up to 55 interest-free days on purchases and included transit accident insurance.
17.57% p.a. $0 p.a. annual fee for the first year ($60 p.a. thereafter) Go to site More info
Commonwealth Bank Business Platinum Awards credit card
Earn up to 3 Awards points per dollar spent, enjoy complimentary insurances and $0 annual fee for the first year.
20.74% p.a. $0 p.a. annual fee for the first year ($300 p.a. thereafter) Go to site More info
American Express Explorer Credit Card
Receive 100,000 Membership Rewards Bonus Points on eligible spend within the first 2 months of Card Membership. Also enjoy a $400 travel voucher and two complimentary airline passes per year.
20.74% p.a. 0% p.a. for 12 months with 1% balance transfer fee $395 p.a. Go to site More info
ANZ Platinum Credit Card - Exclusive Offer
Receive $200 back when you spend $500 in the first 3 months. Also enjoy a $0 annual fee for the first year.
19.74% p.a. $0 p.a. annual fee for the first year ($87 p.a. thereafter) Go to site More info
ANZ Platinum Credit Card
Enjoy platinum card benefits with $0 annual fee in the first year and complimentary overseas travel and medical insurance.
19.74% p.a. 0% p.a. for 18 months with 3% balance transfer fee $0 p.a. annual fee for the first year ($87 p.a. thereafter) Go to site More info
Newcastle Permanent Value+ Credit Card
Enjoy a competitive annual fee and interest rates on purchases, cash advances, and balance transfers.
11.49% p.a. $49 p.a. Go to site More info

Compare up to 44 day interest-free credit cards

Rates last updated September 28th, 2016
Purchase rate (p.a.) Balance transfer rate (p.a.) Annual fee
ANZ First Visa Credit Card - Exclusive Offer
A card with up to 44 interest-free days, 0% p.a. for the first 12 months on balance transfers and 0% p.a. for the first 3 on purchases.
0% p.a. for 3 months (reverts to 19.74% p.a.) 0% p.a. for 12 months $30 p.a. Go to site More info
American Express Qantas Discovery Card
Save by not having to pay annual fees, and earn Qantas Frequent Flyer points at the rate of 1 per dollar spent.
20.74% p.a. 0% p.a. for 12 months with 1% balance transfer fee $0 p.a. Go to site More info
ANZ First Visa Credit Card
Enjoy a low annual fee, interest-free days on purchases and a low minimum credit limit.
19.74% p.a. 0% p.a. for 18 months with 3% balance transfer fee $30 p.a. Go to site More info
Virgin No Annual Fee Credit Card
No annual fee for the life of the card with $100 cashback and a 0% p.a. offer on balance transfers for 18 months. Spend criteria applies for cashback offer.
18.99% p.a. 0% p.a. for 18 months with 2% balance transfer fee $0 p.a. Go to site More info
Virgin Australia Velocity Flyer Card - 0% Interest Offer
Receive 0% p.a. for 12 months on purchases, 0% p.a. for 6 months balance transfers and an exclusive $129 Virgin Australia Gift Voucher every year.
0% p.a. for 12 months (reverts to 20.74% p.a.) 0% p.a. for 6 months $129 p.a. Go to site More info
Virgin Australia Velocity High Flyer Card - 30k Bonus Points offer
Receive 30,000 bonus Velocity Points and earn 1 Velocity Points per $1 spent. Receive an exclusive $129 Virgin Australia Gift Voucher and two complimentary Single Entry Virgin Australia domestic Lounge passes each year.
20.74% p.a. 0% p.a. for 6 months $144 p.a. annual fee for the first year ($289 p.a. thereafter) Go to site More info
Virgin Australia Velocity Flyer Card - Balance Transfer Offer
Enjoy a 0% p.a. balance transfer offer for 18 months and also earn 2 bonus Velocity Points in the first 3 months on everyday spend.
20.74% p.a. 0% p.a. for 18 months $64 p.a. annual fee for the first year ($129 p.a. thereafter) Go to site More info
American Express Qantas Ultimate Card
Enjoy 50,000 bonus Qantas Points when you meet the minimum spend requirement and earn up to 3 Qantas Points for every $1 spent. Also enjoy a complimentary return flight every year.
20.74% p.a. 0% p.a. for 12 months with 1% balance transfer fee $450 p.a. Go to site More info
American Express Velocity Platinum Card
Enjoy up to 50,000 bonus Velocity Points when you meet the minimum required spend and earn up to 3 rewards points per dollar spent. Also receive a complimentary return flight every year.
20.74% p.a. 0% p.a. for 12 months with 1% balance transfer fee $349 p.a. Go to site More info
American Express Qantas Premium Card
Earn as much as 30,000 bonus Qantas Points when you meet the minimum spend requirement. Enjoy frequent flyer benefits including uncapped Qantas Points per $1 spent, complimentary travel insurance and Qantas Club lounge invitations.
20.74% p.a. 0% p.a. for 12 months with 1% balance transfer fee $249 p.a. Go to site More info
ANZ First Student Card
An ideal credit card for students with 44 days interest-free on purchases with $0 annual fee in the first year. Access your account on the go with the goMoney™ app.
19.74% p.a. $0 p.a. annual fee for the first year ($30 p.a. thereafter) Go to site More info

Full payment maintains interest-free status

Using a credit card means that one can shop conveniently without carrying cash. Paying the total sum due by the indicated date allows you to maintain your interest-free status. This is because the interest is calculated on a daily basis. However, when a monthly billing cycle ends, interest does not start accruing immediately. Instead, additional interest-free time is allotted in accordance with the credit card agreement. Only after the due date has passed does interest begin to accrue on a daily basis, so paying the total due by the due date means that no interest will be required.

Keeping a balance on the credit card account

If the full balance due is not paid by the time the due date comes around, you’ll usually lose the interest-free status for that billing cycle, as well as the next one, because the amount due will carry over to the next bill. Be sure that credit card bills are paid completely in full, rather than paying just the minimum amount due to prevent this.

When you don’t pay the full amount due by the due date, a number of situations will arise:

First of all, as mentioned the interest-free period is lost for that billing cycle. Interest is then charged on the outstanding balance, going back to the date of purchase. Any partial payments will, of course, reduce that amount. The interest due will show up on the statement for the following month.

Next, the following month also loses its interest-free status because there is a balance from the previous month. Interest charges will accrue on the outstanding amount from the previous month, as well as any purchases made in the new month for the entire billing cycle. This interest will be charged each day of the billing cycle.

In addition, any interest remaining at the end of the second month statement will also be added to the balance for the statement in the third month. Interest is then being charged on the balance that was interest to begin with, so paying balances in full is definitely the smartest course of action for the card holder.

Interest is also charged on any fees that are not paid in full by the due date.

Going back to the computer example from above, if someone does not pay their bill in full on the October purchase, they could wind up paying two additional months of interest in the November and December statements. Remember that the interest-free periods are sacrificed from the months of November and December, as well. Daily interest accrues from October on the following items:

  • outstanding balances from the October statement;
  • any interest accruing on the October balance;
  • all new charges made during the November billing cycle.

This means that even if the balance is paid in full with the second month bill, there are still interest charges from the initial statement.

Pay attention to balance transfers

A balance transfer offer is a good way to save money and pay off debts, although it usually comes with one drawback – there are no interest-free periods available on purchases. When a balance transfer is carried out from an existing card, the existing card isn’t automatically closed, so it may be a good idea to continue spending on the existing card and use the new card specifically for paying off the transferred balance rather than making purchases.

Timing is everything when it comes to shopping interest-free

Considering the interest-free period may vary considerably in length, from 44 (or even 55) days to as few as 14 days, it can be a good idea to make larger purchases toward the beginning of a billing cycle, to offer as much time as possible for making the interest-free payment.

It pays to check the dates on your billing statement to know when the perfect purchasing times are. If you wish to purchase a new oven for the kitchen, for example, look at the billing cycle end for the last statement and buy the oven the day after this. Through completing your purchase on that first day of the new cycle, you are taking advantage of every single interest-free day available to you through your credit card account, allowing you time to pay off the oven, the credit card account, and avoid interest charges. Making the same purchase in the waning days of a billing cycle may mean you’ll only have received one pay cheque before your bill is due.

Look at your statement regularly

Refer to your billing statement if you are uncertain of when to make a purchase. Remember, though, that it may not always fall on exactly the same date each month. If the normal date, say the 5th of the month, is on a public holiday or a weekend, the date will be adjusted to the nearest banking day. Saturdays will fall back to the Friday date (i.e. from the 5th to the 4th) while Sundays will move forward to the Monday (i.e. from the 5th to the 6th).

Work around your schedule

If you wish to alter your billing cycle to help it match better with your paydays at work, simply call the credit card company. They can sometimes make these sorts of changes, but be sure to note that this can take a few billing cycles to take effect, so pay attention to the statements you receive.

Keep an eye on your statement and use your credit card like your accountant would -without paying interest.

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Credit Cards Comparison

Rates last updated September 28th, 2016
Purchase rate (p.a.) Balance transfer rate (p.a.) Annual fee
Virgin Australia Velocity Flyer Card - Balance Transfer Offer
Enjoy a 0% p.a. balance transfer offer for 18 months and also earn 2 bonus Velocity Points in the first 3 months on everyday spend.
20.74% p.a. 0% p.a. for 18 months $64 p.a. annual fee for the first year ($129 p.a. thereafter) Go to site More info
ME Bank frank Credit Card
Enjoy a low and consistent interest rate on purchases and cash advances, combined with no annual fee.
11.99% p.a. $0 p.a. 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. Go to site More info
HSBC Platinum Credit Card
Receive a full annual fee refund and save $149 if you meet the $6,000 spend requirement. Enjoy a balance transfer offer and platinum card benefits such as complimentary insurances and concierge services.
19.99% p.a. 0% p.a. for 15 months $149 p.a. Go to site More info

* The credit card offers compared on this page are chosen from a range of credit cards CreditCardFinder.com.au has access to track details from and is not representative of all the products available in the market. Products are displayed in no particular order or ranking. The use of terms 'Best' and 'Top' are not product ratings and are subject to our disclaimer. You should consider seeking independent financial advice and consider your own personal financial circumstances when comparing cards.

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