How is credit card interest calculated?

Working out how interest is calculated on your credit card can be tricky to get your head around, particularly if you’ve never had a credit card before. Read on to find out how it’s calculated, and how you could make the most of interest free days.

Changes to how interest is calculated

From 1 January 2019, all Australian financial institutions will need to change how they calculate credit card interest and how interest free periods for purchases are applied. We’ll be making these changes on 1 December 2018, so that they apply to payments that are due from 1 January 2019.

What’s changing?

The impact of these changes will vary depending on your repayment preference and the interest free period on your credit card. For example, if you paid your balance in full last month and you don’t pay the full amount on your current statement by the due date, you will be charged interest on the outstanding balance from the day after the payment due date. For credit cards with interest free days on purchases, a new interest free period will start as soon as the balance is paid off in full. This means that some customers may pay less interest from 1 January 2019.

Your statement period and due date

We’ll send you a statement every month that you have balance outstanding or there’s activity on your account. It’ll cover your statement period and let you know when your payments are due. If you miss the payment due date, you’ll start accruing interest.

The different kinds of interest

Interest is calculated at the end of the statement period. It’s calculated on the average daily unpaid balance from your previous statement, using the annual percentage rates outlined in your Schedule. If you’ve been charged interest, it will be displayed on your statement as follows:

1. Debit Interest Purchase 

This is charged on any purchase made on your credit card.

2. Debit Interest Cash

This is charged when you withdraw money from your credit card (this is called a cash advance). No interest free period applies, and interest is charged from the day the cash advance is completed.

3. Debit Interest Special 

This is charged on balance transfers and any time you have a promotional rate on your account. You may see more than one entry for this if you have multiple promotional rates on your account.

Interest free days on purchases

When you make purchases, interest doesn’t get charged right away. To take advantage of interest free days on purchases, you will need to pay the total amount owing on your current statement in full (including any balance transfer or cash advance balances) by the payment due date.

If your credit card has an interest free period, which can be up to 55 days, interest will only start being charged if you don’t pay off your full amount owing by the due date. Once interest starts being charged it’ll be charged on all purchases.

Need more help?

If you still need help you can speak to someone from the team.