Credit Card Fees and APR: The Complete Breakdown

What Is Credit Card APR?

The annual percentage rate (APR) is the cost of credit expressed as a yearly interest rate. It is the most common way credit card issuers state how much interest you will be charged on balances you carry from month to month.

A single credit card may have different APRs for different types of transactions. For example, the APR for purchases may be different from the APR for balance transfers and cash advances.

When you compare cards, the APR you see in advertising is usually the purchase APR. That rate can change, and it is separate from other rates that apply to cash advances or balance transfers.

• The purchase APR applies to everyday purchases you make with the card.
• A separate balance transfer APR applies when you move a balance from another card.
• Cash advance APRs are often higher than purchase APRs; check your card's terms for the specific rates.
• Many cards offer an introductory APR that is lower than the standard rate for a set period.

Sources: Consumer Financial Protection Bureau, FDIC

Annual Fees: Paying for the Card Itself

An annual fee is a yearly fee that some card issuers charge just for having the card. Not all cards have an annual fee; many no-frills cards do not charge one, while premium rewards cards often do.

The fee is charged once per year, typically on the account anniversary. It appears on your statement as a charge and can be paid in full or over time, depending on your card agreement.

• Cards with no annual fee are common and may still offer rewards and useful features.
• Premium cards with high rewards rates or travel perks often justify the annual fee with benefits.
• Some issuers waive the annual fee for the first year as an introductory offer.

Sources: Consumer Financial Protection Bureau

How Interest Is Calculated

Credit card interest is typically calculated using the average daily balance method. This method adds up your balance for each day of the billing cycle and divides by the number of days in the cycle, giving an average balance. Interest is then applied to that average.

The exact amount depends on the daily compounding and the APR.

If you pay your balance in full by the due date each month, you typically do not pay interest on purchases. This is called the grace period. Cash advances generally do not have a grace period; interest begins accruing immediately when you take out the cash.

Sources: FDIC

Penalty APRs: When Your Rate Jumps

A penalty APR is a higher APR that may be applied if you make a late payment or violate other terms of the cardholder agreement. It is significantly higher than the regular purchase APR and can make a balance much more expensive to carry.

Under federal law, a credit card company cannot raise your rate for the first 12 months after account opening, except for introductory rates or if you are more than 60 days late. If you are more than 60 days late, the penalty APR can be applied.

If you do receive a penalty APR, creditors are required to reduce the rate if you make on-time payments for six consecutive months. This gives you a path back to a lower rate.

• A penalty APR can be triggered by a late payment or other violation of your card agreement.
• Making on-time payments for six months generally results in the penalty APR being removed.

Sources: Consumer Financial Protection Bureau, FDIC

Foreign Transaction Fees

Foreign transaction fees are charged when you make a purchase in a foreign currency or with a merchant outside your home country. The exact fee varies by card.

Some cards do not charge foreign transaction fees at all, making them a good choice for international travel. The fee is usually shown as a separate line item on your statement.

If you travel internationally, check your card's terms to see if it charges a foreign transaction fee and how much it is.

Sources: FDIC

Other Common Fees

Beyond annual fees and foreign transaction fees, credit cards commonly charge several other fees. Understanding these can help you avoid surprises.

Late payment fees are charged when you do not make the minimum payment by the due date. The amount varies by issuer.

Cash advance fees are charged when you use your card to get cash, such as at an ATM. This fee is in addition to any interest that accrues on the cash advance.

Balance transfer fees are charged when you move a balance from one credit card to another. These are typically a one-time fee of 3% to 5% of the amount transferred.

Over-the-limit fees may apply if you make a purchase that pushes your balance above your credit limit, though these have become less common.

• Late payment fee: charged when the minimum payment is not received by the due date.
• Cash advance fee: charged when you use your card to obtain cash, usually a percentage of the advance.
• Balance transfer fee: a one-time fee of 3% to 5% of the amount transferred.
• Over-the-limit fee: may apply if you exceed your credit limit, if you have opted in to allow such transactions.

Sources: Consumer Financial Protection Bureau, FDIC

How APR and Fees Add Up

The total cost of a credit card is more than just the APR. Fees and interest can combine to make a card much more expensive than the advertised rate suggests. According to a CFPB market report, in 2022 issuers charged more than $130 billion in interest and fees on credit cards.

The report also found that, by the end of 2022, interest and fees as an annualized percentage of balances were almost 18% on general purpose cards and over 21% on private label accounts. This shows how much these costs can add up.

Retail credit cards, which are often issued by stores, often have higher APRs than general purpose cards. The CFPB has noted that some retail credit cards have APRs as high as 35.99%.

When you compare card offers, look beyond the headline APR and consider the full fee structure, including how each fee is triggered and how much it costs.

Sources: Consumer Financial Protection Bureau