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Guide to credit card fees

Find out everything you need to know to avoid credit card fees in New Zealand and overseas.

Credit cards have a wide range of features and benefits and come with many different charges. These costs quickly add up and can lead to serious credit card debt if they’re left unchecked.

The good news is that you can avoid most credit card fees if you’re aware of them. Here, we outline the most common credit card fees, how much they’re worth, and what you can do to stop or minimise their impact on your card.

Annual fees

Most credit cards charge an annual fee, which costs as little as $0 or over $1,000. The more features and benefits a credit card has – such as a rewards programme or complimentary travel insurance – the more likely it is to have a high annual fee.

Annual fees usually start when you first activate a card and are then applied around the same date for every year you have the card. Some cards waive this fee in the first year, so be sure to check the ongoing rates and fees before you apply.

How to avoid it: If you take advantage of credit card perks, you could find that the value they offer outweighs the annual fee’s cost. Otherwise, you should consider a card that offers a lower fee or one that charges no annual fee for life.

How Alex avoided annual fees

Alex currently pays an annual fee of $195 for her platinum rewards credit card. While she earns 1 point per $1 spent on the card, she only spends about $12,000 per year. This is just enough points to get a $100 gift card, which means Alex is paying $95 more for the card than she receives from the benefits.

By switching to a no annual fee rewards credit card, Alex can save $195 on a card and still receive rewards.

Compare no annual fee cards for 2021

Name Product Purchase Rate Interest Free Period Annual fee
American Express Airpoints Card
0% for 6 months (reverts to 19.95% p.a.)
Up to 55 days on purchases
$0
Be rewarded with 50 bonus Airpoints Dollars. Simply apply, be approved, and spend $750 on your new Card in the first 3 months of membership. This offer is available to new Card Members only.
Warehouse Money Visa Card
19.95% p.a.
Up to 55 days on purchases
$0
Kiwibank Zero Visa
13.95% p.a.
Up to 55 days on purchases
$0
1.99% on balance transfers for 6 months.
Kiwibank Air New Zealand Airpoints Platinum Visa
20.95% p.a.
Up to 44 days on purchases
$150
1.99% on balance transfers for 6 months.
ANZ Low Rate Visa Credit Card
12.9% p.a.
Up to 55 days on purchases
$0
Balance transfer offer: Pay 1.99% p.a on balances transferred for the first two years. Ts&Cs apply.
ASB Visa Light
13.5% p.a.
Up to 55 days on purchases
$0
0% p.a. interest for 6 months on any purchase of $1,000 or more with ASB Smart Rate.
Westpac Low Rate Mastercard
12.9% p.a.
Up to 55 days on purchases
$0
Low rate of 5.95% for all balance transfers for the life of the balance.
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Interest

Credit cards charge interest when you carry a balance, and the amount you pay is based on a percentage of this balance. The percentage is represented by an annual rate, such as 19.95% p.a., but is calculated daily and charged monthly. Depending on your card, you could have any or all of the following interest rates applied to your balance:

  • Purchase rate. This is the interest rate charged for new purchases made on the card and might be anywhere from 9.95% p.a. to 25.99% p.a. It could be less if there is an introductory promotional rate.
  • Cash advance rate. This is the interest rate applied for cash advance transactions, such as ATM withdrawals. It is usually between 9% p.a. and 27% p.a.
  • Balance transfer rate. This is the interest rate applied to any balance you move from a previous card to your current card. If you get a balance transfer credit card, you can pay a low or 0% promotional rate for the introductory period. Standard balance transfer rates (after the intro period) are usually based on the card’s cash advance or purchase rate and can be as high as 27% p.a. Some balance transfers offer a lower rate, for example, 5.95% for the life of the balance transferred.
  • Promotional interest rate. This interest rate is usually offered to new cardholders for a set period of time, such as the first 12 months. If you’re looking at getting a card with a promotional interest rate for purchases or balance transfers, make sure you also check the standard interest rate that applies.

How to avoid it: If you pay your balance in full by the due date on your statement, you won’t be charged interest. However, if you do carry a balance, aim to pay more than the minimum each month or choose a card that has a low ongoing interest rate, or a low promotional interest rate. These strategies help you keep costs down, at least in the short term.

Thien's interest savings

Thien has a credit card with a $5,000 balance and an interest rate of 19.99% p.a. If he only makes minimum payments on this card, he will be charged around $955 in interest for the year.

If Thien switches to a card that offers a low ongoing interest rate of 12.99% p.a., he could save around $354 in interest over the course of the year. He could save even more money by making larger repayments. He could also avoid interest charges completely if he transferred the debt to a 0% balance transfer card and paid it off before the end of the introductory period.

Balance transfer fees

Although uncommon in New Zealand, some balance transfer credit cards may charge a fee for moving your existing debt from a current card to the new account. Balance transfer fees (also known as balance transfer processing or administration charges) are usually between 1% and 3% of the total debt you move, which quickly adds up if you have thousands of dollars of debt.

How to avoid it: Check that the balance transfer card you’re considering doesn’t charge a balance transfer fee. Remember, the fee should be listed in the “Fees” section for any card you consider.

Move your debt and save like Miranda

Miranda has seen a balance transfer credit card that offers 0% interest for 6 months and charges a 2.5% balance transfer fee. She has a $6,000 debt she wants to move but would have to pay $150 for the transfer fee if she got this new credit card. Instead of applying, Miranda compares a range of balance transfer options and finds a different card that doesn’t charge an annual fee, which means she can transfer her debt, save money on the process and pay off her balance faster.

Foreign transaction fees

Most credit and debit cards apply a foreign transaction fee when you use your card overseas or when you shop online with an international merchant. This charge – also known as an “international transaction fee” or “currency conversion fee” – is usually between 1% and 3.5% of the total transaction.

How to avoid it: Look for a credit card that doesn’t apply a foreign transaction fee. You could also consider a prepaid travel card that lets you load and use funds in several currencies, cash or a combination of travel money options that can help reduce the fees you pay when you’re overseas or shopping online.

How Kai saved on transaction fees on holiday

Kai has just got back from a trip to Brazil, where he spent $3,000 on his credit card. He checks his statement and sees that a 3% foreign transaction fee was applied each time he used the card, adding $90 to his total bill. While Kai has to pay the fees this time, he decides to shop around for a card with no foreign transaction fee to save money on all his future trips.

Cash advance fees

This fee is charged for “cash advance” transactions, including when you withdraw money from an ATM or buy foreign currency. In these instances, you might be charged around 2% to 3% of the total transaction. However, this isn’t the only cost when using your credit card for cash transactions: you are also charged the cash advance rate of interest from the day the transaction is made.

How to avoid it: Don’t use your credit card to get cash out and avoid using it to buy foreign currency. Also, check with your credit card provider about other transactions where this fee applies and steer clear of them. If you need to get cash at any time, use an EFTPOS or debit card, or set up a savings account for cash if you need it in an emergency.

Valentina's cash advance mistake

Valentina has run out of cash at a music festival. She isn’t sure of her everyday transaction account balance, so she withdraws $1,000 using her credit card. When she gets her next statement, she sees she has been charged a 3% fee worth $30. The cash advance interest rate of 21.99% p.a. has also been charged for 20 days, totalling $12, which means Valentina has paid $42 for using her credit card. In the future, she decides to keep more cash on hand and make sure she has some available on her EFTPOS card to avoid these fees.

Late payment fees

If you don’t make a payment on your credit card by the due date on your statement, you could be charged a late payment fee.

How to avoid it: Always make payments before the due date on your statement, and make sure you factor in processing times for the payment method you choose. You may even want to set up an automatic payment from your transaction account so that you always meet this deadline. It’s also a good idea to check your credit card “Product Disclosure Statement” for terms and conditions around late payments so that you know exactly how much you’ll pay and what else could apply.

Over limit fees

You could be charged an “over-limit fee” if you max out your credit card in a statement period. Not all credit card companies apply this charge, but it could be anywhere from $5 to $35 extra.

How to avoid it: Regularly check your credit card balance, so you know your “available credit limit” when using the card. If you regularly get close to going over the limit, you may want to consider requesting a credit limit increase.

Credit card surcharges

Businesses actually charge this fee rather than your credit card provider. Some credit card surcharges are a percentage of the transaction, for example, 3%, while other retailers may charge a flat fee, for example, $3.

How to avoid it: You can avoid this fee by having another payment option available – such as an EFTPOS or debit card, cash, direct transfer or by using a service such as PayPal.

Other credit card fees

These credit card fees are less common, but it’s still good to know when they may apply and how you can avoid them.

  • Chargeback fee. If you need to reverse a credit card transaction through your credit card provider, you could be charged a fee of around $10–25. You can avoid this fee by getting a refund with the merchant before going to your credit card provider.
  • Card replacement fees. For fast-tracking or overseas replacements of lost credit cards, you could potentially pay hundreds of dollars for the service. Check with your credit card company to find out about these costs, and have a backup payment option so that you don’t need to speed up the process of getting a new card if yours is lost, stolen or damaged.
  • Additional cardholder fee. Some credit cards charge an annual fee when you request an additional or supplementary cardholder for your account, which may be around $5 to $30. If you know you want to share your account with a partner or family member, make sure you check for this fee, as some cards don’t charge it.
  • Paper statement fee. Some credit card companies charge you a fee if you request paper statements for your account. Usually, this will be around $5 to $10, but you can avoid it by opting for paperless statements delivered to your email or via Internet banking.
  • Non-bank ATM fee. If you use your credit card to withdraw cash or check your balance at an ATM outside of your credit card provider’s network, you could be charged a fee of up to $5. There may also be additional charges from the ATM operator, so avoid getting cash out and check your balance via the Internet or mobile banking instead.

While credit cards come with many different benefits, they often have just as many fees. Now that you know more about these charges, you can make informed decisions about how and when you pay with plastic to avoid them and keep your card working for you.

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