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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This article was reviewed by Senior Journalist Tony Ibrahim before it was published as part of RateCity's Fact Check process.



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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.

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 to apply for an HSBC credit card instalment plan?

HSBC provides a host of different features and benefits to its customers, including interest-free finance options for purchases made at select retailers.

Using this feature, you can make a purchase in-store or online through your credit card, and spread your repayments for up to 60 months. Opting for a credit card instalment plan may be an ideal option as you can make big purchases without worrying about making immediate payments. 

The interest-free instalment plan is valid for all HSBC credit cards, so you shouldn't need to fill out separate forms or apply for a particular plan. Rather, all you should need to do is use your HSBC credit card at any of the participating retailers and inform the vendor that you want to pay using HSBC interest-free. 

As HSBC has partnered with over 1,000 retailers for its interest-free credit card instalment plan, you get the flexibility to purchase a host of different products. Some of the popular retailers that HSBC allows instalments for are: 

  • Webjet 
  • King Furniture 
  • Betta Home Living
  • Stratco 
  • Video Pro 
  • Bing Lee

Once you have provided approval to the vendor, HSBC will send you an SMS asking you to confirm the purchase, following which the payment will go through, and you can select your preferred instalment plan. 

While you may be inclined to choose the most prolonged duration for repayment considering there are no interest charges, it’s important to know that minimum monthly repayments will still apply (3%, or $30, whichever is higher), making it important to choose the right HSBC credit card instalment plan that suits your requirements. 

How to pay a credit card from another bank

Paying or transferring debt from one lender to the other is called a balance transfer. This involves transferring part or all of the debt from a credit card with one lender to a credit card with another. As part of the process, your new lender will pay out the old lender, so that you now owe the same amount of money but to a new institution.

Many credit card providers offer an interest-free period on balance transfers to help new applicants better handle their debt. During this period, cardholders are not required to pay interest on the debt they brought over from the other card. This can be a great opportunity for consumers to pay off credit card debt with no interest. There are often fees associated with balance transfers; normally, these are a percentage of the amount transferred.

So make sure you read the terms and conditions of the card before transferring any debt across.

What is a credit card?

A credit card is a payment method which lets you pay for goods and services without using your own money. It’s essentially a short-term loan which lets you borrow the bank’s money to pay for things which you can pay back – potentially with interest – at a later date. Credit cards can also be used to withdraw money from an ATM, which is known as a cash advance. Because you’re borrowing money from a bank, credit cards charge you interest on the money you use (unless you repay the entire debt during the interest-free period). When you apply for a credit card, the bank gives you a credit limit which sets the maximum amount you can borrow using your card. Credit cards are one of the most popular methods of payments and can be a convenient way of paying for goods and services in store, online and all around the globe.

Can I transfer money from my American Express credit card to my bank account?

If you’re an American Express credit card customer, you may not be able to transfer money from your credit card to your bank account. However, you may be eligible for cash advances, which involves withdrawing money through an ATM. 

To qualify for a cash advance, you’ll likely have to enrol for American Express Membership Rewards. Consider checking your online credit card account to see if you can withdraw a cash advance and, if so, the fees and charges you’ll incur for this transaction. 

You should remember that cash advances are different from balance transfers, which were available with some American Express credit cards earlier. Balance transfers allow customers to consolidate debt from high-interest credit cards to a credit card offering a lower interest rate. If you only recently applied for an American Express credit card, balance transfers may not be available irrespective of the card you own. 

What should I do if my ANZ credit card has expired?

Your ANZ credit card is considered expired only after the last day of the month and year marked on your card. For instance, if your card’s expiry date reads 03/22, it is valid until 31 March 2022 and expires on 1 April 2022. Typically, you should have received a new credit card by that date, and you won’t have to request a new card. 

Once you get the new card, you should remember to switch any automatic payments you have - such as a utility or mobile phone bill - from your expired credit card to your new credit card. Equally, if you are using CardPay Direct to repay your ANZ credit card debt, you may need to update the credit card account details for that service as well. 

In case the new card doesn’t arrive by the expiry date of your current credit card, you can call ANZ on 13 22 73 to find out the reason and if you need to request an expedited card. Please note that if you were planning to close your credit card account or request a credit card upgrade, you may need to call ANZ at least before the 25th of the month your current credit card expires in, as that’s when they may send you the new credit card.