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Credit card interest rates

Your credit card costs are determined by different types of interest rates, your card's grace period and your repayment schedule.

When you use a credit card, you’re essentially borrowing money from the account’s credit limit. Just like any other loan, interest will be charged on the balance. How and when this interest is charged can have a huge impact on what you’ll pay to borrow money using your credit card.

In this guide, you’ll find answers to the most common questions about credit card interest, including the different rates that may apply and how to take advantage of interest-free days so you can avoid interest charges altogether.

What are credit card interest rates?

An interest rates is a type of fee that’s charged when you borrow money. With credit cards, interest rates are calculated as a percentage of your balance and shown as an annual percentage rate (APR).

For example, a card could have a purchase interest rate of 8.99% APR, while a different card could have a purchase interest rate of 19.99% APR.

Types of credit card interest rates

Here are the most common types of credit card interest rates you’ll find on credit cards:ccf interest woman

  • Purchase interest rate. This is the interest you are charged when you use your credit card for making payments in retail outlets or online. You only incur this interest rate if you don’t pay off your full balance by the due date.
  • Cash advance interest rate. This is the interest rate you are charged when you use your credit card for withdrawing cash from ATMs or cash equivalent transactions, like buying gift cards or gambling.
  • Balance transfer interest rate. This is the interest rate you’re charged when transferring an existing credit card debt to a new card.
  • Promotional interest rate. Many credit card providers offer new customers promotional interest rates for purchases and/or balance transfers. This promotional interest rate is only available for a limited time, with the standard interest rate applying after the specified time period. For example, a card may offer you 0% interest on balance transfers for the first 6 months. If you didn’t pay off the balance transfer during the first 6 months, the standard rate for balance transfers would apply to the debt.

Even the smallest difference in credit card interest rates can have a huge impact on costs. When you’re looking for a new card, make sure you compare both the standard and promotional interest rates to help you find one that suits your needs.

How does credit card interest work and how is credit card interest calculated?

The interest rate on credit cards is normally shown as an annual figure, but most credit card companies calculate interest on a daily basis and then add the charges to your account at the end of each statement period.

To determine your credit card interest amount, your daily outstanding balance is multiplied by the daily interest rate on your credit card. These daily calculations are then added together at the end of the statement period to get the total interest due.

  • The daily interest rate is calculated by dividing the APR by 365 days.
  • The monthly interest rate is calculated by dividing the APR by 12 months.

As an example, if you have a 19.99% APR and an outstanding balance of $300 on your card:

  • Your daily interest rate will be 0.054%, which has you paying $0.16 in interest a day.
  • Your monthly interest rate will be 1.665%, which has you paying $4.99 in interest per month.

The true cost of compound interest

The way credit card interest is charged is known as “compound interest” because it is calculated daily. This means that you could end up paying interest on your interest charges. The good news is that you can cut down on interest costs any time you make a repayment, because that will also affect the daily interest calculation.

Compare credit card interest rates

Say you owe $1,000 on a credit card with a 20.99% APR. If you make $50 payments every month, it would take about 2 years to pay off your balance and would cost about $212 in interest. If the interest rate was only 15.99%, it would still take 2 years to pay off the balance, but you’d only pay about $153 in interest — $53 less than you’d pay with the higher-interest credit card.

The table below shows interest rates, fees and more for some of the most popular cards on the market today. Compare your options to find a card with the features you need at a cost you can afford.

Name Product Welcome Offer Rewards Purchase Interest Rate Annual Fee Min. Credit Score Description
HSBC +Rewards™ Mastercard®
30,000 Points
2x points per $1 spent
11.9%
$0 annual fee for the first year ($25 thereafter)
Min. recommended credit score: 630
Get 30,000 Points (up to $150 in value) when you spend $2,000 in the first 6 months. Plus, get the 1st year annual fee waived for the primary cardholder ($25 value). Apply by January 31, 2022.
BMO CashBack Mastercard
5% cash back
Up to 3% cash back
19.99%
$0
Min. recommended credit score: 660
Get 5% cash back on all eligible purchases in the first three months of card membership (up to max. spend of $2,000). Plus, get a rate of 1.99% on balance transfers with a 1% balance transfer fee for nine months.
Tangerine World Mastercard
15% cash back
Up to 2% cash back
19.95%
$0
Min. recommended credit score: 680
Earn an extra 15% cash back (up to $150) on up to $1,000 of everyday purchases in the first 2 months Until November 30, 2021. Plus, get a 1.95% interest rate on balance transfers for the first 6 months (valid within the first 30 days of account opening, 1% transfer fee applies).
Neo Financial Credit Card
N/A
Average 4% cash back
19.99% - 24.99%
$0
Min. recommended credit score: 600
Earn an average cash back of 4% at thousands of local and national Neo partners including most major gas and grocery stores, restaurants, gyms, coffee shops and more. Earn a guaranteed 1% cash back on all spend at non-partners.
BMO Preferred Rate Mastercard
3.99% rate on balance transfers for 9 months
N/A
12.99%
$20
Min. recommended credit score: 660
Get a rate of 3.99% on balance transfers for 9 months with a 1% transfer fee. Plus, get the $20 annual fee waived in the first year.
American Express Cobalt Card
50,000 points
Up to 5x points per $1 spent
20.99%
$155.88
Min. recommended credit score: 700
Earn up to 50,000 Membership Rewards points in your first year. Earn 2,500 Membership Rewards points for each monthly billing period in which you spend $500 in net purchases on your card (up to 30,000 points). Plus, earn a Welcome Bonus of 20,000 Membership Rewards points when you spend a total of $3,000 in purchases on your Card in your first 3 months of Cardmembership.
Brim Mastercard
Up to $200 worth of bonuses
1 point per $1 spent
19.99%
$0
Min. recommended credit score: 700
Earn up to $200 worth of bonus points when you shop with Brim retailers for the first time through the Brim mobile app.
Tangerine Money-Back Credit Card
15% cash back
Up to 2% cash back
19.95%
$0
Min. recommended credit score: 680
Earn an extra 15% cash back (up to $150) on up to $1,000 of everyday purchases in the first 2 months Until November 30, 2021. Plus, get a 1.95% interest rate on balance transfers for the first 6 months (valid within the first 30 days of account opening, 1% transfer fee applies).
SimplyCash Card from American Express
4% cash back
Up to 1.25% cash back
19.99%
$0
Min. recommended credit score: 700
Earn 4% cash back on purchases (up to $200 cash back) for the first 6 months of Cardmembership.
American Express Green Card
10,000 points
1 point per $1 spent
20.99%
$0
Min. recommended credit score: 700
Earn a Welcome Bonus of 10,000 Membership Rewards points when you charge $1,000 in purchases to your card in the first 3 months as a new Cardmember.
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What is a credit card grace period?

Not exactly. Many people think you have to start paying off your balance immediately after you charge a purchase to your card. In fact, credit card companies offer a grace period during which you can pay off your balance without interest.

Every Canadian credit card provider must provide a grace period of at least 21 days from the end of your billing period. You can find the exact length of your grace period in your card’s terms and conditions. Terms often look something like this:

Your due date will be a minimum of 21 days after the close of each billing cycle. We will not charge you interest on purchases if you pay your entire balance by the due date each month.

What if I only repay part of my balance?

One major credit card myth is that, if you pay off a portion of your balance during the grace period, you’re only charged interest on the outstanding amount. But grace periods are an “all or nothing” deal — if you don’t pay off your entire purchase during the grace period, you’ll be charged interest on the entire amount (even the portion you repaid) all the way back to the original purchase date.

Unfortunately, you agree to this arrangement when you agree to your credit card’s terms and conditions. This is why carrying a balance can be so dangerous. After charging a purchase to your card, plan to pay it off fully before the grace period ends to avoid racking up interest fees.

What else do I need to know?

As well as interest rates, make sure you consider the following when you’re looking for a new credit card:

  • Interest-free days. Many credit cards offer up to a certain number of interest-free days on purchases when you pay your account balance in full by the due date on your statement. You should be offered a minimum of 21 interest-free days up to a maximum of 55 days. This gives you a way to avoid paying interest charges for spending on your credit card.
  • 0% interest rate offers. If you get a credit card with a promotional 0% interest rate, it may only apply for certain types of transactions. For example, you could get 0% interest on balance transfers for 6 months but still have to pay the standard variable interest rate for any new purchases made during that time.
  • Annual fee. Many credit cards charge an annual fee, which could also add to your account balance. Remember to factor this cost in when comparing credit cards and when budgeting for interest costs and repayments.
  • Other features. Many credit cards offer complimentary extras such as insurance or rewards, which could help offset the cost of the annual fee and interest charges. Weigh the value of the benefits against potential costs so you can decide if a card is worth it based on your spending habits and goals.

Bottom line

When applying for a credit card, it’s important that you read the fine print to understand all of the terms and conditions of your agreement. Understand how much you will be charged for each type of transaction you make in order to plan your repayments and responsibly use your credit card.

While interest rates are important to consider, you should consider other costs like annual fees and foreign currency fees, as well as any benefits you can reap from the card. Check out our guide on low interest rate credit cards Canada to learn more.

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