How does a credit card interest free period work?

How does a credit card interest free period work?

You’ve nabbed a credit card with a high number of interest free days but realised you’re not quite sure when the first day starts, or if your interest free days apply to each new purchase.

You’re not alone, as understanding credit card interest free periods can be slightly confusing at first. Let’s dive into interest free periods and simplify this so you can make purchases and potentially avoid interest with ease.

What is an interest free period?

First and foremost, we need to look at what exactly an interest-free day is on a credit card to understand how it works over a set period of time.

Put simply, interest-free days are the number of days at which purchases made within your statement period will not accrue interest. Some credit cards will offer the cardholder a number of days ‘interest free’, generally around 44 – 55, but can be higher or lower depending on the provider. Some cards may also come with no interest free days.

It does not mean, for example, that if your credit card offers 44 interest-free days, that every time you make a purchase, you have 44 days from the time of the purchase before you begin to accrue interest on it. In fact, it’s based around your statement period and total outstanding credit card balance.

Your statement period may begin at the first of the month, or the day you were approved for your credit card. This will be available on your credit card statement.

So, if your credit card statement period begins on the 1st of the month, and you make a purchase on the first day of your statement period, you will not be charged interest on that purchase for however many interest free days you have on offer. I.e. that purchase will begin accruing interest 44 days after the 1st of that month.

How your billing cycle works

Confused? It may be worth taking a moment to better understand your credit card billing cycle before we continue.

How Credit Cards Work: Billing Cycle and "Grace Period"

How does an interest free period work?

Your interest free period is the number of interest free days on offer with your credit card. For example, 55 days interest free.

Your interest free period works as per the following:

  1. Your statement period begins – either first of the month or the date your card application was approved.
  2. Your interest free period begins from this same date.
  3. You make a purchase on the first day of your statement period. Interest will begin accruing on this purchase at the end of the interest free period, e.g. you have 55 days to pay off your card balance before you’re hit with interest.
  4. You make another purchase seven days later. You now have 48 days (55 interest free days minus seven calendar days) to pay off your balance before you begin accruing interest.
  5. You make a purchase the day before your statement period ends, e.g. the 31st of the month. You only have 25 days (55 interest free days minus 30 calendar days) to pay off this purchase.

Ideally, you would have waited one extra day to make the last purchase and your interest rate period would have reset, as your statement period would have begun again.

Here is a helpful breakdown of your billing cycle and how the interest free period fits into two calendar months.

how your credit card interest free period works

How to never pay interest on your credit card

Interest free days are a handy way for cardholders to try and limit the amount of interest they’re charged.

If you’re able to pay your statement balance in full each cycle before the end of your interest free period, you’ll potentially never pay interest on your credit card. Being aware of how your credit card works may be invaluable in helping you avoid falling into debt and stay on top of your bills.

As mentioned earlier, some credit cards do not offer any interest free days, and any purchase you make will begin accruing interest immediately. Further, if you have a balance transfer credit card and make any new purchases with said card, those new purchases will immediately begin accruing interest.

This is why it’s crucial you not only do your research around the number of interest free days offered by your card provider as well as the purchase rate, but also ensure you’re using your credit card intelligently.

If you are paying off a balance transfer, you may want to lock your balance transfer card in a drawer or chuck it in the freezer so you’re not tempted to make any new purchases, which will immediately be hit with interest.

It’s also important to note that even if you keep credit card interest to a minimum you may be stung by ongoing fees, such as annual fees and foreign transaction fees. Don’t forget to look at the potential fees on offer that may

How to find credit cards with the highest number of interest free days

Comparison tables allow you to compare credit card options with ease, with the ability to filter your results based on the maximum number of interest free days.

By utilising comparison tables to your advantage, you may be able to find some competitive high interest free day offers, paired with low interest rates and low fees. Keep an eye out for any ongoing fees as well that may up the cost of your credit card.

Here are a few low rate, high interest free period credit card options:

Credit card Purchase rate Interest free days
Bank of us Visa Credit Card



Auswide Bank Low Rate Visa Card



American Express Low Rate Credit Card



Community First Credit Union Low Rate Credit Card



Easy Street Financial Services Easy Low Rate Visa Credit Card



Defence Bank Foundation Visa Card



Source: Data accurate as of 22.10.2020.

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Learn more about credit cards

How does credit card interest work?

Generally, when we talk about credit card interest, we mean the purchase interest rate, which is the interest charged on purchases you make with your credit card.

If you don’t pay your full balance each month (or even if you pay the minimum amount), you are charged interest on all the outstanding transactions and the remaining balance. However, interest is also charged on cash advances, balance transfers, special rate offers and, in some cases, even the fees charged by the company.

The interest rate can vary, depending on the credit card. Some have an interest-free period, otherwise you start paying interest from the day you make a purchase or from the day your monthly statement is issued. So avoid interest by paying the full amount promptly.

How is credit card interest charged?

Your credit card will be charged interest when you don’t pay off the balance on your credit card. Your card provider or bank charges you the individual interest rate that is associated with your card, which is usually between 10 and 20 per cent. 

The interest will be added onto your bill each month or billing period if you don’t pay off the balance, unless you are in an interest-free period.

You will be charged interest on anything that hasn’t been paid for inside the interest-free period. Usually you will receive a notice on your bill or statement saying you will be charged interest so you have some form of notice before you’re charged.

Current Interest Rate

This is the current interest rate on your existing credit card.

What is a balance transfer credit card?

A balance transfer credit card lets you transfer your debt balance from one credit card to another. A balance transfer credit card generally has a 0 per cent interest rate for a set period of time. When you roll your debt balance over to a new credit card, you’ll be able to take advantage of the interest-free period to pay your credit card debt off faster without accruing additional interest charges. If your application is approved, the provider will pay out your old credit card and transfer your debt balance over to the new card. 

How to calculate credit card interest

Credit card interest can quickly turn a manageable balance into unmovable debt. So being able to understand how interest rates translate into dollars is an important skill to acquire.

The common mistake people make is focusing on the credit card’s annual percentage rate (APR), which often sits between 15 and 20 per cent. While the APR does provide a rough idea of how much interest you’ll pay, it’s not entirely accurate.

This is because you actually accrue interest on your balance daily, not annually. So, you need to work out your daily periodic rate (DPR). To do this, divide your card’s APR by the number of days in a year (e.g. 16.9 per cent divided by 365, or 0.05 per cent). You can then apply this figure to the daily balance on your credit card.

How to get a free credit card

There's no such thing as a free lunch. All credit cards come with associated costs when used to make purchases, even if it’s simply the cost of making repayments.

However, many lenders offer incentives for customers such as a $0 annual fee or 0 per cent interest on purchases during an introductory period. Additionally, paying off your balance in full during an interest-free period means you could only have to pay back the cost of purchases without interest. You could also be eligible for additional rewards such as cashback during that time, saving you more money.

How do you use a credit card?

Credit cards are a quick and convenient way to pay for items in store, online or over the phone. You can use a credit card as a cashless way to pay for goods or services, both locally and overseas. You can also use a credit card to make a cash advance, which gives you the flexibility to withdraw cash from your credit card account. Because a credit card uses the bank’s funds instead of your own, you will be charged interest on the money you spend – unless you pay off the entire debt within the interest-free period. If you pay the minimum monthly repayment, you will be charged interest. There are many different credit card options on the market, all offering different interest rates and reward options.

How do you use credit cards?

A credit card can be an easy way to make purchases online, in person or over the phone. When used properly, a credit card can even help you manage your cash flow. But before applying for a credit card, it’s good to know how they work. A credit card is essentially a personal line of credit which lets you buy things and pay for them later. As a card holder, you’ll be given a credit limit and (potentially) charged interest on the money the bank lends you. At the end of each billing period, the bank will send you a statement which shows your outstanding balance and the minimum amount you need to pay back. If you don’t pay back the full balance amount, the bank will begin charging you interest.

Should I get a credit card?

Once you've compared credit card interest rates and deals and found the right card for you, the actual process of getting a credit card is quite straightforward. You can apply for a credit card online, over the phone or in person at a bank branch. 

Can a pensioner get a credit card?

It is possible to get a credit card as a pensioner. There are some factors to keep in mind, including:

  • Annual income. Look for credit cards with minimum annual income requirements you can meet. 
  • Annual fees. If high fees are a concern for you, opt for a card with a low or $0 annual fee. 
  • Interest rate. Make sure you won’t have any nasty surprises on your credit card bill. Compare cards with a low interest rates to minimise risk.

How do I apply for a credit card online?

How to increase the NAB credit card limit?

If you use your NAB credit card regularly, you could consider requesting a higher credit limit. The good news is that it's fairly easy to do so using either the NAB app or NAB internet banking. 

NAB app: 

Step 1: Download the latest version of the NAB app.

Step 2: Select the ‘My Cards’ menu. 

Step 3: Select the card you want to increase the credit limit for. 

Step 4: Select ‘Usage Controls’ and then click on ‘Change Credit Limit’.

NAB internet banking: 

Step 1: Log into your account. 

Step 2: Choose the ‘My Cards’ menu. 

Step 3: Choose the card for which you want to increase the limit. 

Step 4: Choose ‘Change My Credit Card Limit’.  

If you don’t have the NAB app or cannot access NAB internet banking, you can even visit your local branch or call their contact center. 

Once you’ve applied to increase your NAB credit card limit, you’re likely to be asked for your

  • current employment details  
  • total income, before and after-tax deductions  
  • assets, liabilities, and expenses information

NAB will then assess this information to determine if your current financial situation suits the increased credit limit request, and your application will either be accepted or denied.

However, this process will only work if you’re attempting to increase your personal NAB credit card limit. For a business credit card, you can contact the NAB Corporate & Business Servicing team or speak to your NAB relationship manager. 

What does ANZ credit card insurance cover?

ANZ offers complimentary insurance on some of its credit cards, which can provide some protection against unforeseeable incidents, like the theft of your card. Depending on the type of credit card you own, you may be eligible for different insurances. For instance, most ANZ credit card customers may qualify for Purchase Protection Insurance and Extended Warranty Insurance. Customers who own premium credit cards may also be eligible for Guaranteed Pricing, Rental Vehicle Excess, International Travel, and so on.

Consider checking your ANZ credit card insurance features listed in the Insurance Policy Information booklet to know which items are covered. Also, while ANZ issued the credit card, they are not the insurer. For this reason, you may need to send your insurance claims - and get your ANZ credit card insurance refund - to the insurance provider.

Monthly repayment

This is how much you can afford to pay on a monthly basis off your credit card. You can enter any amount you wish; but to make the balance transfer worthwhile the default is $200.