Understanding Credit Card Fees and Charges

It is widely accepted that high interest rates make credit cards one of the most expensive forms of credit around. However, fees and charges can often cost as much as the interest if you do not do your homework. In this article we provide a detailed run-down of the most common, and expensive, credit card fees and charges.

Annual fees

Annual fees, as you would expect, are charged once a year and at around $50 they can be a hefty addition to any credit card bill. However, they can be avoided. There is a good range of no annual fee credit cards on the market at the moment. No annual fee credit cards generally attract higher interest rates, but are perfectly suited for people who pay off their balance every month and who do not take out cash advances. Most providers offer a no annual fee credit card product so there is plenty of choice.

Late fees

Late fees are charged if you fail to make the minimum payment on your credit card balance each month. This is a surprisingly common mistake and the fees can be extortionate. It is a good idea to set up an automatic transfer from your bank account each month to cover this payment.

Over limit fees

All credit cards impose a credit limit which tells you what your maximum outstanding balance can be. However, the catch is that it is up to you to keep your balance under this limit. If you exceed the limit you will be hit with a heavy fine. Be sure to write down all your credit card transactions and check your credit card balance online regularly.

Cash advance fees

Credit cards can provide an excellent safety net if you are ever short of cash. You can withdraw cash from virtually any ATM just as you would with your standard bank card. However, this luxury comes at a high price and should only be used in emergencies. Cash advance fees on credit cards can be as high as $20 per withdrawal and you start paying interest on the amount withdrawn immediately.

Balance transfer fees

Balance transfer fees are charged by many banks when a new customer switches an existing balance to their new credit card account. Most people do this to avail of cheap or free introductory interest rates on their new credit card. However, if the balance transfer fee is high and the balance being transferred is small, the cost of this fee can outweigh any savings to be made on interest repayments.

Many credit cards are weighted to benefit either those who pay off their balance each month, or those who don't. If you manage to stay free of credit card debt then it is also much easier to steer clear of fees and charges. No annual fee credit cards are by far the cheapest when it comes to fees and charges, so if you have no outstanding balance this is definitely the way to go.

For additional information on credit cards or related topics please visit our library of credit card articles.