Common Credit Card Fees and How to Avoid Them
Credit cards are a type of loan offered by financial institutions to individuals or businesses. They are valuable financial tools and can be used in case of an emergency. Credit cards typically incur various fees associated with their usage. These fees can be linked to specific transactions, interest accrued, or cash withdrawals.
What are credit card account fees? How many different types of fees are associated with credit cards?
What are credit card account fees?
Credit card account fees are charges imposed by a credit card provider for using their card. Credit card fees are paid either by consumers for using the card or by a merchant for processing the payment. It should be noted that a credit card is a loan provided by an institution. For the provider to make money on their loan, they often charge interest.
Types of credit card fees
These fees are associated with using the card for borrowing, travel and other perks. Credit card fees include:
Credit Card Interest
Credit card interest is the cost you pay for borrowing money on a credit card, typically expressed as an annual percentage rate (APR). If you don’t pay off your full balance by the due date, interest is charged on the remaining amount. The rate can vary depending on the card and how you use it (e.g. purchases, cash advances, or balance transfers). Some cards offer an interest-free period on purchases, but once that period ends or if payments are missed, interest can quickly accumulate.
Late payment fees are charges applied when you fail to make at least the minimum payment on your credit card by the due date. In the UK, this fee is typically around £12, and it can also lead to the loss of any promotional interest rates, a negative mark on your credit report, and higher future borrowing costs. Consistently paying on time helps you avoid this fee and maintain a good credit rating.
Annual or monthly fees are charges you pay simply for having a credit card, regardless of how much you use it. Some premium or rewards cards charge an annual fee (e.g. £25 to over £100 per year), while others may spread this cost as a monthly fee. In return, these cards often offer perks like cashback, travel insurance, or loyalty points. However, many UK credit cards do not charge these fees, especially basic or introductory cards.
A balance transfer fee is charged when you move debt from one credit card to another, usually to take advantage of a lower interest rate. This fee is typically a percentage of the amount transferred, between 1% and 3%. For example, transferring £2,000 with a 2% fee would cost £40. Many UK credit card providers offer an introductory 0% interest on balance transfers, but the fee still applies upfront
Foreign transaction fees are charges that apply when you use your UK credit card abroad, either for purchases or ATM withdrawals. These fees include a non-sterling transaction fee (around 2.75%–3%) and an additional ATM withdrawal fee. Some travel or specialist credit cards waive these charges, making them better suited for use abroad.
Cash advance fees are charged when you use your credit card to withdraw cash from an ATM. The fee is usually around 3% of the amount withdrawn (with a minimum charge, e.g. £3), and interest often starts accruing immediately at a higher rate than for purchases—there's usually no interest-free period. It's generally advised to avoid withdrawing cash on a credit card due to the high costs involved.
Over-the-limit fees may be charged if you exceed your agreed credit limit, though most UK credit card providers now decline transactions that would take you over the limit to avoid these charges. You can still go over the limit if you use all your credit card balance and fail to make the minimum payment. The charged fees will be added to your outstanding balance. Going over your limit can trigger a fee (typically around £12), affect your credit rating, and may result in the withdrawal of promotional rates. It's important to monitor your spending and stay within your credit limit to avoid such penalties.
