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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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. 

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. 

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 transfer money from my Commonwealth bank credit card to my bank account?

Your Commonwealth bank credit card may include a cash advance benefit, but you won't be able to transfer money to your bank account. 

You can, however, withdraw cash from your credit card at an ATM. You should remember that you have to pay a fee for such transactions, and you’ll be charged interest from the day you withdraw the cash. 

Unlike other credit card transactions, you don’t get an interest-free repayment period for cash advances. Also, you may not be able to access your full credit card limit for a cash advance.

Can I use PayPal to transfer from a credit card to a bank account?

You can easily link your credit card to your PayPal account. When you need to make a payment, PayPal makes an instant transfer from your bank account, provided you’ve linked and confirmed your credit card details.For credit card holders, you can transfer funds from eligible cards listed in the “Instant” section of the money transfer page.

Here is how you can transfer money from PayPal to your bank account:

  1. On the “My Wallet” tab, select “Transfer Money” and then click on the “Transfer to your bank account” option.
  2. Choose the bank account where you want to transfer the money and click “Continue.”
  3. Enter the amount, review and click “Transfer Now.”
  4. When you confirm the transfer, the amount should be moved to the bank account linked from the chosen credit card.

What is the American Express credit card insurance coverage?

Several American Express credit cards, including the Gold, Platinum and Green cards, come with international and domestic travel insurance, shopping and purchase protection and smartphone screen insurance. All you have to do to activate your American Express credit card insurance cover is use it to pay for eligible purchases, travel, and a smartphone.

The complimentary travel insurance requires you to be less than 80 years old with no pre-existing diseases and your travel must begin and end in Australia.

To make an American Express credit card insurance claim, you’ll need to lodge your request with Chubb Claim Centre within 30 days. Submit the form along with supporting documents like medical reports, original invoices and receipts. You can also contact Chubb on 1800 139 149 or file a claim via the Chubb website.

What does Westpac credit card insurance cover?

If you own a Westpac credit card, one of the perks may be  free travel insurance. If you’re eligible, you may be covered if you get sick while travelling, have lost your luggage, have to cancel a trip or have an accident while you’re on the move.

Besides these standard inclusions, the Westpac credit card insurance policy may also cover you for hospital essentials, emergency dental treatment and alternative transport if your original plans go awry. It may also cover loss of income when you get back home after being sick  overseas and your pets’ boarding costs too.

If you have any queries, the Westpac credit card insurance contact number is 1800 091 710. You can submit a claim online.