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Should you get a credit card during uni?
As another year of university starts again, many young Aussies may be asking themselves how they’ll be able to afford the costs that come with schooling. One option students may turn to is taking out a credit card. But is this really the best option for your schooling years?
If you’re considering applying for a credit card, there’s a lot to weigh up.
On one hand, you’ll enjoy the ease and convenience of being able to make large purchases without dipping into your savings; you’ll be able to shop online; and you’ll have access to credit in an emergency.
On the other hand, credit cards can come with hefty fees and interest charges. The most common fee incurred on credit cards is the annual fee.
For this reason, a number of credit card providers offer special low-annual-fee credit cards to make being a card owner a less costly endeavour (as well as to make their credit card more attractive in a competitive market). But in order to choose the right low-fee credit card, you'll first need to know the benefits of such a product and how to carry out a low-fee credit card comparison.
What are low-annual-fee credit cards?
Every card comes with a yearly fee that's supposed to cover the cost of the service provided by the issuer, or possibly any rewards programs or special privileges that come with the card.
Think of it like a holding cost you pay for owning the card – you have to pay rent when you move into someone else's property, and this is a similar principle.
While some credit cards charge hundreds of dollars for annual fees, low-fee credit cards keep this cost to a minimum, ensuring you don't pay excessively for extra costs. After all, depending on how you use your card, you may have to foot the bill for interest as well as charges like cash advances or late fees.
What are the benefits of low-annual-fee credit cards?
The biggest benefit of a low-fee credit cards is right there in its name: it offers a low annual fee. This means:
- The less you spend on fees, the easier it is to get on top of your credit card debt
- You could use the card as a relatively affordable line of credit for possible future emergencies
For these reasons, a low-fee card may be suitable for those who use their card every now and then rather than regularly. It might also be a good choice for a first credit card.
Some low-annual-fee credit cards offer an added incentive to customers by dangling the prospect of no annual fee whatsoever for the first year. This can be a tempting proposal, particularly if it's a low-balance-transfer-rate credit card that will let you pay off your other credit card debts more easily.
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What should I look for when choosing a low-fee credit card?
There’s no doubt that a low-fee credit card is an attractive choice among credit cards. However, as with all financial decisions, you should still approach with an element of caution (and do some thorough research).
It’s important to note that many low-annual-fee credit cards lure you in with an attractive introductory offer (for example $0 for the first 12 months). This low fee then expires after a certain amount of time (in this case, 12 months), reverting to a higher annual fee thereafter. So, in many ways, you’re no better off than if you’d chosen a credit card with a standard fee.
Low-fee credit cards can also come with some hidden costs and fees.
If you don’t look closely at the fine print, you could be caught out paying more than you’d hoped (or budgeted) for. Here are some fees you should be aware of.
You possibly haven’t heard of this one. But an inactivity fee is charged on some credit cards if you don’t use your card for an extended period of time or fail to meet the spending limit for the year.
The inactivity fee is often waived for the first year of card membership, but every year thereafter can build up silently without you being aware of it.
The best way to avoid a nasty tally of inactivity fees? Read your credit card’s terms and conditions thoroughly, or ask a customer service representative from the financial institution to talk you through the finer details of fees on the credit card. That way, you should avoid any nasty surprises.
Financial institutions are making a big push towards going digital. This covers everything from online banking to online customer service to online statements. But what you might not know is that some banks actually charge a statement fee for having to physically post your monthly credit card statement to you.
Although it’s only around $2 per statement, it’s one of those hidden fees that you could avoid paying. Always make sure you’re aware of your chosen financial intuition’s policies and online platforms. If you don’t want to pay a statement fee, ask them to set you up on online banking, and seek assistance on receiving email statements instead of post.
Foreign transaction fee
The last thing you want when travelling overseas is getting hit with extra fees on your credit card. And this foreign transaction fee can be a common one to overlook.
It’s basically a fee charged by your bank when they’re forced to convert a transaction from one currency to another. For instance, imagine you use your Australian credit card to buy a scarf in British pounds. Your bank will need to make a conversion between Australian dollars and pounds in order to carry out the purchase. As a result, you could face a fee of 2-3 per cent of your total purchase. And this is on top of the exchange rate.
How do you avoid paying this fee? The best way would be to use a travel money card. These can be supplied through your existing bank and comes with very low transaction costs (sometimes 0 per cent). Over the course of a long holiday, you could save hundreds of dollars in fees.
What should I consider in a low-fee credit card comparison?
As with any credit card, you should carry out a comprehensive low-fee credit card comparison to make sure you choose a suitable product. Look at every part of the credit card, not just its headline fee.
Some low-fee credit cards come with higher purchase interest rates, which can end up more than offsetting the savings you make from paying a reduced fee. Also, just because a credit card has a low annual fee, it doesn't mean that the other charges will be equally miniscule. You can still pick up debt through fees on:
- Late payments
- Cash advances
- ATM withdrawals
- Foreign transactions
Finally, it's worth noting that rewards programs are rare on low-annual-fee credit cards. Low annual fee cards tend to be no-frills, bare-bones products that don't offer a heap of extras for additional spending. This type of product is more for the kind of card user who likes to stay out of debt and keep their finances in order.
So if you use your card sparingly and pay off your card in full on time each month, a low-annual-fee card may be right for you.
A property and personal finance writer, Nick Bendel covers property, loans, credit cards, superannuation, and other bank products. Nick has previously written for The Adviser, Mortgage Business, Lifehacker, Business Insider, Yahoo Finance, and InvestorDaily, and loves getting elbow-deep in the latest ABS, APRA and RBA data.
Pensioners can get credit cards with certain banks – if they can convince the bank they’re credit-worthy. Here are some points to consider if you are a pensioner looking for a credit card:
Annual income: Look for a credit card for which you easily fall within the minimum annual income requirements. This can be from the pension, superannuation or any other sources.
Annual fees: If high fees are a concern for you, opt for a card with a low or $0 annual fee. You want to make it as easy as possible to fit a credit card into your current lifestyle and spending habits.
Interest rate: Make sure you won’t have any nasty surprises on your credit card bill. Choose a card with a low interest rate to minimise risk (to both yourself and the bank – and this will help your application).