Common credit card fees and how you can avoid them

credit card fees

The common credit card fees you probably don’t want to know about, but should.

The Reserve Bank of Australia (RBA) recently reported that most Aussies could save up to $250 per year in credit card costs by switching to a more suitable one. These costs are primarily caused by interest rates and fees being too great compared to the benefits gained from using a card – think rewards programs and special features.

Interest can be a not-so-silent killer when it comes to costing you money, but even those that avoid interest by paying off the balance each month can be stung by credit card fees, such as:

  • The annual fee
  • Currency conversion fees
  • Cash advance and ATM fees
  • Balance transfer fees
  • Late payment fees
  • Over the limit fees
  • Dishonour fees
  • Over the counter fees
  • Replacement card fees

Source: RBA. As a reason for choosing a credit card, fees were identified as the most important factor by around 15% of credit card holders, while 25% said the most important factor was whether the card belonged to their main/preferred bank.

The annual fee

The most common credit card fee is the annual fee. The annual fee is charged by credit card companies to pay for the account maintenance and extra features the card offers, such as travel insurance and airport lounge access. It thus stands to reason that most of the cards that charge a high annual fee tend to be rewards and premium cards, while cards with a low annual fee tend to be more basic ‘no frills’ products.

Various market sources show that cards with an annual fee charge anywhere between $20 and $750. 

There are plenty of cards available that charge $0 in annual fees too, either permanently or in the first year of activation. Such a card might be suitable for people who don’t use their credit card every day and spend small amounts every month. Conversely, high annual fees on cards can be cancelled out by those who maximise the value they get from rewards programs and special perks.

Case study: Oliver pays a high annual fee

Oliver has a credit card that charges a $395 annual fee. He spends about $2,000 a month – or $24,000 a year – which earns him around $240 worth of rewards points – not enough to cover this annual fee.

BUT, he also travels a lot for work, and his credit card grants him several free entries to the Qantas Club airport lounge, valued at around $510 per year. After factoring this in, he decides that the card pays for itself.

Currency conversion fees

Also referred to as ‘foreign transaction fees’, this is the fee charged for purchases made on your card in other countries, as the credit card company (think Visa or MasterCard) needs to convert this money into Australian dollars.

This fee tends to sit between 1% and 4% on all foreign purchases and is usually pretty visible when applying for a card. As with the annual fee, there are plenty of cards that charge 0% for currency conversion, but don’t forget that the credit card provider’s exchange rate (which has margins built into it) will still cost you.

Cash advance/ATM fees

A cash advance fee is the fee charged for withdrawing money from an ATM using your credit card. This fee is often around 3%, BUT you are also charged interest on cash advances the moment they occur (interest-free periods don’t apply). The term ATM fee is used interchangeably with cash advances, but your specific provider might charge another fee for using a different ATM network.

Cash advances can be expensive, so it’s best to use a debit card when withdrawing from ATMs.

Balance transfer fees

Some credit card providers charge a ‘balance transfer handling fee’ when shifting credit card debt across to a new one. This fee is only charged once unlike annual fees, but can easily be forgotten about, and again this fee will be around 1-3% of the balance transfer amount. So if you were to balance transfer a $5,000 debt to a 0% card for 12 months, you’d be charged a balance transfer fee of $50-150.

Not every card charges a balance transfer fee, but this shouldn’t be your reason for using oneASIC’s review of credit card lending in 2018 found that 30% of consumers who used a balance transfer between 2012 and 2017 actually increased their debt by 10% or more. This could be for any number of reasons, but we Aussies are notoriously bad with credit cards, and balance transfers can sometimes charge higher interest rates for purchases made during the introductory period.

So if you’re serious about paying off that debt, don’t make any new purchases on your balance transfer card until it’s all paid off.

Late payment fee

For any unpaid balance at the end of every billing period, credit cards require that you at least meet a minimum repayment, either 2-3% or $20, whichever is higher (ASIC MoneySmart). If you fail to make this repayment, you can be charged anywhere up to $35. Each time.

You can avoid this fee by setting up a direct debit to make your desired repayment every month – the closer to the full amount you can get the better. If this isn’t an option for you, you can contact your provider to ask for an extension on your payment or apply for financial hardship provisions.

Again, not all providers charge a late payment fee, and if they do, they might give you a warning or wait until they have to contact you. 

Over the limit fees

Going over the agreed-upon credit limit can lead to an over the limit fee, which can be up to $35. If you find you’re regularly getting close to your credit limit each time or have been charged a fee or two in the past, you can ask your provider for a credit limit increase.

This is only true for credit cards that were contracted before 2012, as new laws were passed at this time preventing new cards from charging over the limit fees.

Dishonour fees

The dishonour fee is similar to the late payment fee but occurs when a direct debit payment bounces back due to lack of funds (aka a dishonour). This one usually incurs a payment of only a few dollars, but that’s a few dollars you otherwise wouldn’t have to part with.

Replacement card fees

Lost cards are really common in Australia – Commonwealth Bank found that nearly 700,000 people reported lost bank cards (credit or debit) over a 12 month period to April 2018. Most providers won’t charge you a fee for a replacement if you’re in Australia, but for emergency or overseas replacements you might have to stump up more than $100.

Savings.com.au’s two cents

Most if not all of these credit card fees are avoidable in some capacity. Some are avoidable by choosing a different card, while others are avoidable based on your spending habits. It’s entirely possible to never pay over the limit fees, dishonour fees or replacement card fees by properly managing your credit card repayments and keeping it safe and secure in your wallet/purse. Keeping your credit card debt manageable will remove the need to pay a balance transfer fee too.

With savvy searching, you can also find cards that don’t charge annual and currency conversion fees. It’s not necessarily true that such cards come with either high interest rates or disappointing perks either – there are plenty of cards in today’s uber-competitive market that offer a satisfying combination of fees, relatively low interest rates and useful rewards. You just might have to actually take the time to find one yourself.

A hot tip for credit card fees is that you can potentially keep your current card but have the fees waived. How? Try ringing your bank and say you want to cancel your card because you’ve found a better one (this works better if you have actually found another card). You can also call them up and ask for a fee waiver due to missed payments.

The fact of the matter is that as a credit card user you are valuable to your provider – putting aside interest repayments or regular fees paid, they also get a cut of every transaction made due to merchant fees. If you are a regular spender with your card, call them up and say you want to switch. They could offer you:

  • A discounted annual fee
  • A waived annual fee
  • A retention bonus, such as free rewards points.

According to a 2018 discussion paper published by the RBA, 60% of Australians are not getting any monetary benefit out of using a credit card i.e. where the benefits outweigh the costs. If you’re one of them, then why not find an alternative?

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