Credit card fees and charges explained – Forbes Advisor UK
A credit card can be a useful financial tool, offering a wide range of benefits. But it’s easy to get caught out with nasty fees and charges if you don’t use your card with your eyes wide open.
This guide outlines all the fees and charges you might encounter for credit cards and charge cards – and, most importantly, how you can avoid paying them.
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Interest is probably the main cost associated with credit cards. If you don’t pay your balance (what you’ve spent on the card) in full each month, you’ll be charged interest on any remaining amount.
Most credit cards have a grace period of around 56 days. During this period, you will not pay interest on your purchases, as long as you pay off your balance in full.
However, this grace period runs from the start of your billing cycle. This means that if you buy something just before your statement is generated, the interest-free grace period will be much shorter.
Your credit card bill will show the minimum amount you need to repay each month, but only by paying off the balance in full will you avoid paying interest.
If you do not clear the entire balance, your next credit card statement will show the amount of interest due on the remaining amount.
Interest is expressed as an annual percentage rate of charge (APR) and can range from as low as 9.9% to 61% (variable).
If your credit card has a 0% promotional offer, no interest will be charged for the number of months indicated. But if you haven’t paid off your credit card balance by the end of the 0% window, interest will be due on any remaining amount.
Different interest rates may apply to different credit card transactions. For example, you might have one interest rate for purchases, another for balance transfers, and an even higher one for cash withdrawals.
Unlike other credit card transactions, there is no grace period for cash withdrawals. This means that interest will be charged from the time you receive your money until you pay off the balance in full.
To learn more about credit card interest rates, read our guide: How do credit cards work?
Credit cards do not charge interest, but the balance must be paid in full each month. It cannot be carried over to the following month.
A handful of credit cards and charge cards, especially those offering exclusive rewards or cash back, charge annual fees. The amount can vary but is usually between £100 and £250.
Usually, you will pay the first annual fee when you open your account. You will be billed again around the same time each year. Charges are added to your monthly statement when due.
If the credit or charge card you’re considering charges an annual fee, make sure the benefits offered outweigh the cost of the fee.
Late payment fees
If you fail to make at least the minimum monthly repayment to your credit card by the date shown on your invoice, you will be charged a late payment charge of approximately £12. Credit cards also charge late payment fees if you don’t pay off your balance in full by the due date.
Late payments can have a negative effect on your credit history and you could lose any promotional interest rates on your credit card.
Fee for exceeding your credit limit
Credit cards come with a fixed credit limit, which is the maximum amount you can borrow on a credit card at any time. If you exceed this limit, for example if you spend £2,200 but your credit limit is £2,000, you will be charged a fee of around £12.
Cash withdrawal fees
Fees are payable if you use a credit card to withdraw cash from an ATM. This will usually be around 3% of the amount withdrawn, with a minimum fee of £3. If you withdrew £200, for example, you would be charged £6. Interest will be charged from the date of the transaction.
Balance Transfer Fee
If you’re transferring a balance from an existing credit card to a new one, most providers charge a balance transfer fee. Expect to pay between 1% and 3% of the amount you transfer.
For example, if your card charged 3% and you transferred £2,000, you would be charged £60. The charges will be added to your debt and you will see them on your next credit card statement.
Money transfer fees
Likewise, if you use a money transfer credit card, you will often be charged a money transfer fee. This can be even higher than the balance transfer fee – up to 4% in some cases – and again the fee will be added to the amount you owe.
Overseas usage fees
Using your credit or debit card abroad may also incur charges. These can be broken down as follows:
- Foreign transaction fees: You will typically be charged a fee of around 2.99% each time you spend with your card abroad.
- Cash advance fees: If you withdraw money to your card, you will be charged a fee of around 3%, plus foreign transaction fees.
If you are a frequent traveler, note that some credit cards are designed specifically for use abroad and do not charge foreign transaction fees.
A handful of credit cards and charge cards charge a fee if you don’t use your card for a year or more. If you don’t use your card and don’t plan to use it in the future, it might be worth closing the account completely.
Returned Payment Fee
If a direct debit or check payment is rejected due to insufficient funds in your bank account, you will be charged a return payment fee of between £5 and £12. This will appear on your next card statement.
Additional cardholder fees
If you wish to add another person to your card account, there may be a small fee to pay.
Paper statement fee
If you want a hard copy of your monthly statement rather than a copy through online banking, some credit card and charge card providers will request payment for this.
If you move and don’t let your card provider know your change of address, some providers will charge a fee of around £25 to track you down.
How do rising interest rates affect credit card fees?
Credit card APRs are variable, so they can change at any time. This means that when the Bank of England’s discount rate rises, credit card interest rates tend to rise as well.
However, your credit card provider must give you at least 30 days notice if they plan to raise your interest rate. You then have 60 days to refuse the rate increase. If you do, your card provider will close the account and you will have to repay the money you owe at the current interest rate within a ‘reasonable’ time.
One of the quickest ways is to transfer your debt to another credit card with a lower interest rate.
How to dispute credit card charges
If you think your credit card provider charged you unfairly or incorrectly, you can dispute the charge.
Contact your card provider immediately and clearly explain why you think you shouldn’t have to pay the charge. You can contact your provider by calling, logging into your online account, or writing a dispute letter.
Provide as much evidence as possible to support your case. If you’ve never been charged in the past and it’s clear it was a genuine mistake, your card provider may agree to waive the charge.
Avoid credit card charges
As long as you use your credit card the right way, it’s possible to avoid fees and charges altogether. You can do that by following these steps.
- Pay off your debt in full each month
If you pay off your balance in full each month (or if you pay it off as part of a 0% promotional offer you’ve taken advantage of), you’ll pay no interest on the amount you’ve spent.
- Choose a free balance transfer
Although most of the longer 0% balance transfer credit cards charge a transfer fee, some credit cards with shorter 0% offers do not. Shop around and carefully compare your options, checking if you can afford to pay off your balance in a shorter time frame.
Setting up a direct debit to pay the full balance each month will ensure you never miss a payment and avoid late payment fees.
- Respect your credit limit
Check your credit card balance regularly to make sure you never go over your credit limit and avoid penalties. Using online banking and banking apps can help, or you can set up a text alert to notify you when you’re nearing your limit.
Avoid withdrawing cash to your credit card – this way you won’t pay fees or interest on the amount you withdraw.
- Use a foreign credit card when traveling
If you plan to use your credit card abroad, choose one that won’t charge you for foreign transactions.