When you are comparing two credit cards to see which offers the best deal the most important feature to look at is the Annual Percentage Rate (APR). This shows you at a glance how expensive or cheap one credit card is compared to another.
All credit card companies are required by law to quote their APR. You will also notice that the headline APR given is almost always described as ‘typical’ and ‘variable’.
Credit card companies are under no obligation to offer everyone the same interest rate, though most people do get the headline rate. This is why the APR will often be described as ‘typical’. This means that at least two thirds of that credit card companies’ customers are charged the headline APR.
Variable rate credit card
When a credit card APR is described as ‘variable’ it means that it is not fixed and can be raised (or lowered) at the card company’s discretion – credit cards are almost always variable rate. If you are paying the APR of interest on your credit card balance then any such change will raise or lower your repayments.
For the lowdown on exactly what the interest rates are for a particular credit card always consult the ‘Summary box’ on your statement or the card company’s website. Card companies are required to display it somewhere within their promotional material and on your statement, some choose to hide it away but most are fairly upfront with the information. Interest rates are often presented as in the table below:
Standard interest rates
| Card purchases | 16.6% p.a. (variable) | (1.2916% monthly) |
| Balance transfers | 18.6 p.a. (variable) | (1.4352%) monthly |
| Cheque transactions | 20.6% (variable) | (1.5766% monthly |
| Money transfers | 20.6% p.a. (variable) | (2.0751 monthly) |
| Cash transactions | 27.9% p.a. (variable) | (2.0751% monthly) |
‘Card purchases’ are just the normal transactions which attract the standard rate of interest (assuming you don’t have an introductory rate of interest). ‘Balance transfers’ refers to standard non-introductory special offer balance transfers, if you have applied for a credit card with a special offer that rate will shown separately. A balance transfer will also incur a balance transfer fee.
The interest rate for ‘cheque transactions’ applies to transactions made with any credit card cheques that you may have. The rate for ‘money transfers’ applies to transfers made from your card to your bank accounts. Credit card cheque transactions incur an additional credit card charge as well as higher credit card interest.
The rate for ‘cash transactions’ is what you will pay on money that you withdraw from a bank or an ATM using your credit card, it’s the highest rate on every credit card. A cash transaction will also incur a credit card charge, in addition to the higher interest rate.
Introductory rates are often shown separately
Also shown in the ‘Summary Box’ will be details of any introductory interest rates on balance transfers or new purchases plus a host of other information about how the interest will be calculated and then applied to your balance.
This other information may include when the card company starts to charge credit card interest on any transaction, normally from the date of the transaction until the bill is paid off in full. How often interest is worked out – this is normally daily so the earlier you make a payment the less interest you will pay.
You should also be aware of the information on the ‘Allocation of Payments’ also known as the ‘Order of Payments’. These are the rules that the credit card company uses to determine which part of your balance is repaid first.
Most card companies use your monthly repayment to reduce the part of your balance that is paying the lowest rate of credit card interest. In other words, if you have made a 0% balance transfer and then used your card to withdraw cash from an ATM, you won’t be able to pay off your cash advance until you have paid off your entire balance transfer.
