Credit Card Interest Rates And Annual Fees

There is a huge focus on interest rates when it comes to credit card features, but what about the annual fees? In some cases a credit card with one or two strong features will have a higher annual fee and end up costing more than the interest paid.

To make sure you are not losing money by using your credit card, let’s look at how credit card interest rates and annual fee options can be used to your advantage.

Cost Calculations

One of the reasons there is such a big focus on low interest rate credit cards is because, on their own, low interest rates are always better than high ones. But credit cards rarely come with just interest rates in mind, so it is important to think about other factors on the card, and how you plan on using it.

If you intend to use your card for everyday use and make regular repayments on time, chances are you will not have to pay any interest for the year. So for a card that has a $100 annual fee, you are actually spending money without realising it.

Just as interest is seen as an expense, annual fees are often forgotten until charged, but factoring them in before you get a credit card could influence your decision.

For someone who wants to pay off an expense over time using his or her credit card, a low rate card is ideal. But try to factor in the total expense before deciding on a credit card option. If you had $4000 outstanding for the year on a card with 17% p.a. interest and an $80 annual fee, that would cost you $760 in total, which actually works out to be 19% of the initial amount.

On the other hand, a card like the HSBC Credit Card, with an interest rate of 17.99% p.a. would cost $719.60 in interest for the year, but with no annual fee that actually saves you money compared to the scenario above.

Low interest rates and fees will vary from card to card, but factoring both of these features into your decision can lead to more savings.

Some cards will have no fee and a higher interest rate, others will have a fee that makes their low interest rate cost you more, and some may have both low rates and low fees that work out better for you. So if you want to take advantage of the lowest credit card costs available, remember to factor in annual fees as well as the interest rate.