Compare Interest Rates
Posted March 17th, 2010Understand how you can save money when you compare interest rates. Find out how interest is calculated and how to take full advantage of your interest-free days.
Cheapest MasterCard Interest Rate
The Bankwest Breeze MasterCard was given the Cheapest Credit Card award for 2010 by Money magazine, for it’s superb low interest rate on purchases and balance transfers. The Bankwest Breeze MasterCard is in fact the lowest purchase rate MasterCard in Australia, making it a genuinely great value credit card.
- $69 annual fee
- 10.99% p.a. on purchases
- 4.99% p.a. for 12 months on balance transfers
- Cash Advance Rate of 21.99% p.a.
- 55 days interest free
- Minimum Income Requirement of $20,000 p.a.
- Apply online and receive an instant response to your application
One of your most important jobs when choosing a credit card is to compare interest rates. Unless you are one of those people who always pays their credit card bill in full each month and is therefore never charged interest, then you will at some point be subject to interest applied to your account. So, keeping your rate as low as possible will mean that you pay less interest.
What exactly is credit card interest?
Essentially, this is the fee you pay to the lender for them extending credit to you. All credit cards accounts charge an interest rate, which is also called the APR (Annual Percentage Rate). The annual percentage rate differs from card to card, and different providers have slightly different ways of working this out, but not enough for you to worry about.
You are also charged various levels of interest depending on the transaction being carried out. The three main ones are low introductory interest rates on balance transfer offers, the purchase interest rate, and the cash advance rate, which is the highest. With purchase interest in particular, there can be a variation of 10% between cards, so if you don’t compare interest rates here then you are asking for trouble.
The four main types of interest rate explained
Purchase interest – This is the interest that is charged when you use your card to buy goods or services, such as paying for groceries or using your credit card to cover your utility bills. This rate ranges from around 10% right up to 20%.
Cash interest – Also called the cash advance rate or cash transaction rate. This is charged on ATM withdrawals, purchases of foreign currency or traveller’s cheques, any gambling transactions, fund transfers via phone or Internet banking, and bills paid over the counter at a bank or post office. This is almost always around 20%
Special interest – These rates apply to such activities as making balance transfers from one bank’s credit card to another. These are usually very low rates of interest that are set for a certain length of time. Anyone with a debt to transfer certainly needs to compare interest rates on these offers.
Interest on interest - Also known as compound interest, this is interest charged on previous interest charges that remain unpaid from previous months. Simply put, the first time you are charged interest, this is added to the balance you have left unpaid, and then this total amount, if not cleared in full, becomes subject to further interest charges the following month.
How is credit card interest calculated?
This is a pretty standard calculation so there’s no need when you compare interest rates to check how your provider works this out. Interest on a credit card is worked out as follows: The banks determine your average daily balance (ADB) over the statement period for each type of transaction (as listed above). For example, your purchases are totalled then divided by the number of days in the statement period to give your ADB on purchases. The banks then calculate the daily rate by dividing the APR applying to the transaction type by 365 (days in the year). For example, your purchases are at 15% so the calculation is 15% divided by 365 = 0.0410958% per day. That percentage is multiplied by the ADB, and then multiplied by the number of days in the statement period. If you fail to pay your account in full any month, interest is charged on the last day of your statement period.
What are interest-free days?
The majority of credit cards have an interest-free days feature, but it is always best to check this when you compare interest rates. The usual interest-free period is up to 55 days, but some cards have 44 or 45. With 55 days, this includes the 30 day statement period, and 25 days grace in which to pay your bill.
No interest will be charged on a purchase if:
- The full closing balance is paid by the payment due date for the statement on which the purchase is listed, and you also paid the closing balance of the previous statement by its payment due date.
Interest will be charged if:
- You did not fully clear the closing balance on your previous statement by the payment due date. In this case, your current statement will include interest charges for the outstanding balance, and for any new transactions made since the end date of that statement.
To reiterate … to take advantage of interest-free days, your previous statement must have been cleared in full by the payment due date. If you clear your balance in full but it’s beyond the due date, you will lose your interest-free days for that and the following month, and you will be charged a late-payment fee. Cash advances do not enjoy any interest-free days.
In conclusion
Although it is important to compare interest rates when choosing a credit card, the above rules must also be taken into account. You may get the lowest interest rate available, but if you break the rules over repayments, you will pay the price.
Check out today's featured offers:
| Westpac Low Rate | Citibank Clear Platinum | Qantas AMEX Discovery | ANZ Platinum |
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0% p.a. for 6 months on purchases & balance transfers |
2.9% p.a. for 12 months |
$0 annual fee Up to 10,000 Bonus QFF Points |
0% p.a. for 6 months on purchases & balance transfers |
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