Credit card fees are often talked about, but rarely understood. How do these fees affect your credit card spending? Keep reading to find out!
Many would consider getting a credit card as a rite of passage for the first steps of adulthood. It makes sense to have a card that rewards you every time you spend, whether it’s miles, cash back, or reward points.
While it’s great to be rewarded for your purchases, there’s also the other side of the coin: credit card fees. Here are the biggest ones:
|Types of credit card charges||Percentage of fees|
|Foreign currency transaction fees||~ 3.25 percent|
|Dynamic currency conversion fees||~ 1% (excluding exchange rate increases)|
|Late payment fees||~ 3%|
|Annual subscription||~ $ 180|
|Cash advance fees||~ 8 percent|
1. Foreign currency transaction fees:
As the name suggests, these are credit card fees imposed on any payment made in foreign currency. Most banks in Singapore typically set this rate at 3.25% on the amount converted to Singapore dollars. Ouch!
2. Dynamic Currency Conversion (DCC):
When you choose to pay for your overseas purchases in Singapore dollars with your local credit card, your bank charges you a fee of approximately 1% on the converted currency conversion.
In addition to this, you are also subject to unfavorable exchange rates provided by the trader or the currency conversion provider. This double whammy can easily cause you to pay between 7 and 15% for the exchange fees alone!
These overseas credit card charges are some of the increasingly important forms of credit card charges to be aware of, primarily because they are typically hidden on bank statements.
This is one of the main reasons that multi-currency accounts, like YouTrip, have grown in popularity in recent years because they allow anyone to make payments easily, without any additional fees.
Plus, with real-time wholesale exchange rates, you’ll also be sure to get the best rates on your overseas spending. .
With more and more people spending foreign currency online, many banks continually claim to have the best credit card for spending abroad.
Yet inevitably, these cards come with hidden fees on foreign currency transactions and exchange rate markups! You can learn more about these fees in our Guide to Foreign Transaction Fees.
3. Late payment fees
It’s usually a good idea to pay your credit card bill in full once you receive it. If that’s not possible, you should at least pay the minimum monthly payment – which is typically 3% of your total bill or up to $ 50, whichever is greater.
This is because banks charge high interest if your payment is not made in full by the due date.
Credit card debt is notoriously difficult to overcome and can spiral out of control before you even know it, so it’s always wise to make sure you’re only spending within your means! When using a credit card, make sure you avoid the ruthless cycle of paying late fees and interest charges.
4. Annual membership fee
Simply put, these are the fees you pay for the convenience of using a credit card. To attract potential customers, most credit cards come with no annual fee promises for up to 2 years!
But you can expect to see a charge of around $ 180 (the average annual charge for a credit card) on your statement each year thereafter. Of all the credit card fees listed, annual fees are generally the easiest to avoid with a little time and effort.
The most direct way to avoid these charges is to call your bank! Most banks are likely to accept your request to keep you as a customer.
Some banks make it much easier to apply for annual fee waivers, with the option available online at the push of a button.
There are also several credit cards with no annual fees, although these usually require you to spend a certain amount for the year, be a member of their partner organization, or already be one of their “priority” customers.
5. Cash advance fees
Withdrawing money with a credit card from an ATM is not a common practice, and for good reason! These withdrawals come with an additional fee of 6-8% of the transaction, with a minimum charge of $ 15.
Cash advance fees are more common for travelers than for locals. You may find yourself abroad and in dire need of hard cash. At this point, you may have no choice but to turn to your credit card and face those hefty fees.
But fear not, having a multi-currency account can help you in this regard! With YouTrip, you can easily withdraw money from ATMs abroad without worrying about cash advance fees.
Spend smarter with your credit cards
Credit cards are definitely useful when used correctly! But as consumers, we will first need to know about all of these credit card charges and how to avoid them.
For example, avoid using credit cards for your foreign currency purchases. Instead, use a multi-currency account for all of your spending abroad. Banks may try to promote overseas spending with miles or cash back.
But we’ve done the math on both mileage cards and cash back cards – let’s just say the rewards aren’t always worth looking for when spending in foreign currencies.
As a guide, here are some easy-to-follow credit card rules:
- Pay your monthly credit card bills on time and in full
- Take the time to apply for an annual credit card fee waiver
- Avoid using your credit card to withdraw money
This article first appeared in YouTrip.