Credit Card Fees And Charges Explained
Credit card fees and charges can get confusing. There are different kinds of interest being charged, a load of fees and the credit card companies are pretty bad at explaining exactly what all of these fees are and when they are charged.
Credit card fees include interest on different types of balance, spend fees for doing balance transfers or money transfers, using your card abroad or withdrawing cash and penalty fees applied when you miss a payment or go over your limit. Sometimes other less common fees also apply.
To help you get on top of the different kinds of credit card fees that you may be charged, we've put together this guide which covers every different kind of fee in full detail.
We have the full detail about every fee type below, but here is the full list of every type of credit card fee that typical credit cards will have.
| Credit card fee or charge | Description | |
|---|---|---|
| 1 | Purchase Interest Rate | Interest charged monthly on purchases |
| 2 | Balance Transfer Interest Rate | Interest charged monthly on balance transfers |
| 3 | Money Transfer Interest Rate | Interest charged monthly on money transfers |
| 4 | Cash Interest Rate | Interest charged monthly on cash withdrawals |
| 5 | Balance Transfer Fee | Fee charged when you do a balance transfer |
| 6 | Money Transfer Fee | Fee charged when you do a money transfer |
| 7 | Cash Withdrawal Fee | Fee charged when you withdraw cash from an ATM |
| 8 | Foreign Exchange Fee | Fee for transactions in a different currency |
| 9 | Foreign Cash Transaction Fee | Fee for withdrawing cash abroad |
| 10 | Exchange Rate | The rate at which foreign currency is converted |
| 11 | Exchange Load | Incremental charge above the exchange rate |
| 12 | Late Payment Fee | Fee charged if you miss a payment |
| 13 | Over Limit Fee | Fee charged if your balance exceeds the credit limit |
| 14 | Returned Payment Fee | Charge for making a payment that bounces |
| 15 | Annual Management Fee | Annual fee charged for premium credit cards |
| 16 | Tracing Fee | Charged for tracking you down for payment |
| 17 | Copy of Statement Fee | Fee for requesting a duplicate of one statement |
| 18 | Copy of Transaction Fee | Fee for requesting a written record of a transaction |
There are one or two less common fees that we will cover below, but this should cover all the fees you will typically encounter on a credit card.
How to check your credit card's fees and charges
All credit cards in the UK are legally obligated to provide you with the full list of all the fees and charges through a document called the Summary Box.
This is a one page (or sometimes slightly longer) table with the format largely prescribed by the regulator where the credit card companies will display the different interest rates and fees that they charge. The majority of the fees listed in the table above will be in the majority of these Summary Boxes.
Don't go looking for this information in the Consumer Credit Agreement or other legal paperwork.
These agreements are standard across different customers and different products and almost always do not include the exact fees you will be charged. The wording will explain what the charges are using complex legal jargon, but to get the actual values, you'll need to read the Summary Box.
When you apply, the Summary Box and the other legal information is presented to you before you submit your application. Make sure you find these bits as they can be hard to spot on a busy page.
If you've misplaced it, your best bet is to contact your company and request a copy - these should be provided to you free of charge upon request.
Credit card interest charges
The most common type of charge that a credit card company will add to your bill and the one that makes them the most money is interest.
There are 4 different kinds of interest rates that apply to most credit cards: Purchase, Balance Transfer, Money Transfer and Cash (although not all companies offer money transfers).
Typically purchases will have the lowest interest rate and cash the highest because of the different level of risk the credit card companies associate with those transactions.
Some companies will combine Money Transfers and Cash into a single category with one interest rate. Others may charge a flat interest rate across all transaction types on some credit cards, although this is not common.
[quote author=]Only purchase transactions benefit from the interest-free period if you repay in full. All other transactions are charged interest for every day you hold a balance.[/quote]That means that if you repay your credit card in full every month, but withdraw a small amount of cash, you will be charged interest on the next statement for the number of days you held a cash balance AND THE FOLLOWING MONTH for the time between the statement date and the date on which you made the payment.
Different kinds of interest rates
Purchase interest rate is charged on regular shopping spend whether you buy in-store or online. The majority of transactions on credit cards will be for purchase balances.
Balance transfer interest rates are applied to balances you transferred from another credit card - read our detailed guide about balance transfers for more information.
Money transfer interest rates are similar to the above, but apply to money transfers which is a method of sending money from your credit card to your current account. Not all providers allow money transfers.
Cash interest rates apply to cash withdrawal balances. These include taking money out of an ATM, over the counter at a bank and all gambling transactions, whether in a betting shop or online.
Most typical credit cards will have purchase interest rates of 16.9% or 18.9%. Balance Transfer and Money Transfer rates will typically be 2-5% higher while cash transactions will often have interest rates of 24.9% or 29.9%.
All of these interest rates are quoted as cumulative annual rates. To get the monthly rate that will apply to your balance, you have to do a bit of maths which will result in 1.3% to 1.5% per month on average.
Beware that different customers can have different interest rates for the same product. These are risk assessed and can be adjusted by the credit card company. While things like fees are rarely different, make sure you know what your interest rates are as they may be different to those advertised.
Promotional Interest rates
A lot of credit cards will offer promotional interest rates to encourage customers to build a balance.
Most frequently, these will apply to a credit card for the first month or three months following your application. In a lot of cases promotional rates will be 0% for X months. Leading offers can offer 0% deals for as long as 3 years, but you'll need a near-perfect credit rating to get accepted.
To use these promotional deals, you have to spend during the window they are active and the balance you build during that time will have the offer applied to it.
Any transactions after this initial period will be charged standard interest rates.
From time to time, your credit card provider may send you promotional rates as part of their marketing efforts. Some companies, like Barclaycard, are known for doing this a lot.
Usually these offers will not be as good as those you can get when you first apply for a product, but you win on the convenience on not having to go through the application process and being able to use it immediately.
Credit card spend fees
Spend fees are those applied when you do a balance transfer or money transfer, take out cash from your credit card or use it abroad.
There are a number of different fees, but in reality these are a lot simpler than it may initially seem. Almost all credit card companies will charge 3% for each of these fees. Some will call it 2.99%, 2.95% or even 2.9%, but there's not much variation here.
The types of spend fees you can incur are as follows. Basically everything that isn't a purchase type transaction will incur a fee.
- Balance transfers
- Money transfers
- Cash Withdrawals
- Gambling transactions
- Transactions in a foreign currency
- Foreign cash withdrawals
One point to note is that if you go and withdraw money abroad from a credit card, you will get hit twice with credit card fees - the foreign cash withdrawal fee and the foreign exchange fee will both apply making a total fee of around 6%.
Another thing to remember is that these fees almost always have a minimum of £3 applied (except the foreign exchange fee). This means that if you withdraw £30 in cash, you will be charged £3, or 10% of the total amount! And that's before the hefty cash interest rates are applied.
Fees for using your credit card abroad
Using your credit card abroad can become very costly very quickly. While there are a few credit cards out there that do not charge foreign exchange fees, the majority have a number of different charges for when you spend on your travels.
There is one fee that customers are more or less familiar with - the Foreign Exchange Fee. Every time you spend in a currency other than the British pound, you will pay a fee for the conversion. This is almost always 3% give or take a fraction.
The second kind of fee is the Foreign Cash Withdrawal Fee - this is for using a cash machine abroad and costs the same as withdrawing cash in the UK.
The reason this fee exists is so that companies can double charge you for your foreign cash withdrawal by applying both fees together.
Now we get to the Exchange Rate and Load. All credit card providers today use the Visa or Mastercard daily exchange rates for processing the cost in pounds of your foreign transaction.
While these rates used to not be great, today you get a very fair deal and that exchange rate will often be very close to the real exchange rate. While this is not an explicit fee, you will still effectively 'pay' every time for the difference in exchange rates.
The Exchange Load is the one kind of fee that credit card companies used to abuse, but is becoming much less common. It is also the one fee that you may not find in the Summary Box, but buried deep in the depths of the Consumer Credit Agreement. This will be a fixed increase on the daily exchange rate that is applied to the currency conversion by the credit card provider.
Credit card penalty fees
Penalty fees are very straight-forward. There are two types of penalty fee out there:
| Fee | Amount | Description |
|---|---|---|
| Late Payment Fee | £12 | If you do not make at least the minimum payment between the statement date and the payment due date |
| Over Limit Fee | £12 | If your balance goes above your credit limit |
The credit card Late Payment Fee
The Late Payment Fee is simple enough. If you fail to make the payment required by the payment due date, you will get hit with a fee.
UK regulators have capped these penalty fees at £12 and that is exactly what every credit card provider chooses to charge.
A lot of customers get caught out by this because of the way the timing here works. You could be making a payment every month, but if you make it on the wrong day, you may still end up missing a payment.
Credit cards will typically have a window of between 14 and 26 days for you to make a payment.
So if the statement is printed on the 1st of the month, you may have to make your payment by the 15th or face paying the late payment fee. Even if you make a large payment just before the statement is generated or one day late, but in the same month, these won't count.
The Over Limit Fee
The Over Limit Fee (also £12 across the board) is charged if your balance goes above your preset credit limit.
A lot of customers are simply unaware that this is even possible until they see the £12 charge on their monthly statement. But it is and it can earn the credit card company a decent amount of money.
Typically, credit cards will operate a shadow limit - a credit limit buffer for you to use above your credit limit in case you need to spend that little bit more.
The charge may seem disproportionate, but pay attention to your credit limit to make sure you don't go over. Remember that the charges that credit card companies add to your account can actually take you over your limit. If your balance goes over your credit limit after interest charges are added on statement day, you'll have to pay the extra £12 too!
If you're approaching your credit limit and not sure if you might go over, use Faster Payments to pay money into your credit card. A lot of credit cards will apply the Faster Payments payment within 2 hours and some will do it immediately which can be a life saver if you're on the way somewhere and need to use your card.
The Returned Payment Fee
This is an odd one and definitely one of the more questionable fees in the list of things a credit card company might charge you.
This fee applies if you make a payment, but for whatever reason that payment does not go through.
This was originally introduced for customers making payment by cheque when that cheque would subsequently not be honoured by the bank due the processing costs involved.
Today the percent of people who pay by cheque is zero, but the fee still exists.
Don't worry - you won't be charged this fee if your debit card is declined when you are trying to make a payment online. Today this fee is reserved for Direct Debit payments that do not come through because of insufficient funds or some other reason.
Take note that even if you do make the minimum payment required by some other payment means, you will still get charged this fee if your Direct Debit fails.
Credit card annual or monthly fees
Very few credit cards in the UK have annual or monthly fees. This is very common in other countries across Europe and in North America, but in the UK, the practice is largely reserved for high-end premium credit cards.
These credit cards are often called the "Black" card with the Platinum name being used for most everyday credit cards instead. They will carry an annual fee of something like £150 to £500 and come with perks such as travel insurance and access to airline lounges.
Despite the perks hardly justifying the fee, these cards still have a market that likes them.
Most of these cards will charge the fee once a year, although models where the fee is split and charged monthly are beginning to be more common.
One exception to this rule is the 118118 Money credit card which is targeted at customers with bad or limited credit histories and has a monthly fee associated with it. This fee replaces all other charges and the credit card does not have any interest, spend or penalty fees associated with it.
Less known credit card fees
There are a few types of credit card fees and charges that even people who work in the industry don't know about.
One of these is the Tracing Fee.
The mysteriously named fee applies in cases where the customer has moved and stopped paying for their credit card and the credit card company traces them down to their new address in order to pursue their money.
The fee is usually £20 to £25, but is very rarely used.
Another fee that still exists despite online banking being universal is the charge for requesting duplicate statements or records of individual transactions. These will cost you between £2 and £5 depending on the company, but you can get the exact copy of your statement downloaded as a PDF from your online banking which is free instead.
Lastly, a few companies such as Barclaycard and Newday (with their aqua and marbles credit cards as well as other brands) have instalment loan features as part of their credit card product.
These allow you to take out a small loan for a purchase and repay it in fixed instalments, like you would with a loan. These have their own fee and interest rates associated with them - please check with the credit card company before making use of the feature.
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