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Credit card interest is charged on the money you owe, calculated from a daily rate (the annual rate divided by 365) and added to your account once each statement period. You avoid it on purchases only by paying the full closing balance by the due date every month; carry any balance and you usually lose your interest-free days, so new purchases are charged interest from the day you make them.
This guide explains each piece: the rates on a card, how interest-free days really work, what counts as a cash advance, how minimum repayments stretch a debt out, and the rules in the National Consumer Credit Protection Act that decide which part of your balance a payment clears.
By Better Rate Mate Editorial Team · Last reviewed
For scale: the RBA's average standard credit card rate was 20.99% a year in August 2026, and its average low rate card rate 13.49%.
| Transaction | Rate that applies | Interest-free days? |
|---|---|---|
| Purchases | Purchase rate | Usually yes, if you paid the last closing balance in full by the due date |
| Cash advances (ATM withdrawals, money transfers, cash-like transactions) | Cash advance rate, often higher, plus a cash advance fee | No: interest from the day of the transaction |
| Balance transfers | Promotional rate for a set period, then the revert rate | No, but a 0% rate means no interest during the offer |
| Introductory (honeymoon) offers | A lower rate for a limited time | Depends on the offer |
Methods vary by issuer, but CommBank's published explanation is typical: it averages the balance you owed each day across the statement period, multiplies by the daily rate (annual rate ÷ 365), then by the number of days in the period, separately for each type of balance. Interest is added to the account on the last day of the statement period.
A hypothetical example: carrying $2,000 for a 30-day statement period at 20.99% costs about $34.50 ($2,000 × 20.99% ÷ 365 × 30).
"Up to 55 days interest-free" means a purchase made at the start of a statement period gets the whole period plus the time to the due date; one made the day before the statement closes gets only the time to the due date. Moneysmart's plain rule: interest-free days only apply if you pay the full balance by the due date.
Pay less than the full closing balance, even by a little, and you usually lose the interest-free period. CommBank's explanation, for example, says it then charges interest on the unpaid balance from the day after the due date, and new purchases attract interest from the day you make them. To get interest-free days back, you generally have to clear the balance in full; check your card's conditions for the exact rule.
The law decides this, not the bank. Section 133BQ of the National Consumer Credit Protection Act requires a card issuer to apply your payment to the closing balance on your last statement, and where different rates apply to parts of that balance, to the highest-rate part first, then the next highest, and so on. Any amount left over is applied under the card's terms (s 133BR). If you've asked for payments to go against a particular amount and the issuer agreed, that comes first (s 133BP).
In practice: pay more than the minimum and the extra clears your most expensive debt first, such as a cash advance. On a card with a 0% balance transfer, it clears the higher-rate purchases before the transfer; see balance transfer credit cards.
These come from Part 3-2B of the National Consumer Credit Protection Act and are summarised in ASIC's Report 788.
The minimum repayment keeps the account in good standing; it doesn't clear the debt quickly. A hypothetical example: paying a flat $60 a month on a $3,000 balance at 20.99% takes about 10 years and costs about $4,180 in interest. Paying $300 a month clears the same balance in under a year. Moneysmart's credit card calculator shows your own figures, and our balance transfer calculator compares staying put with moving the debt.
From a daily rate (the annual rate divided by 365) applied to the balance you owe each day, and added to your account each statement period. For example, $2,000 at 20.99% for 30 days is about $34.50.
Yes. Paying only the minimum means you carry a balance, which is charged interest, and you usually lose interest-free days on new purchases too.
From the day of the transaction. Cash advances have no interest-free period and usually carry a separate fee.
By law (s 133BQ of the National Consumer Credit Protection Act), to the closing balance on your last statement, highest interest rate first. Any extra is applied under the card's terms.
No. Since 1 January 2019 credit card providers have been prohibited from charging interest retrospectively, such as on a balance that had an interest-free period.
The RBA's average standard credit card rate was 20.99% in August 2026, and the average for low rate cards was 13.49%.
Card types, fees, interest-free days and credit limits, explained in one place in ourguide to comparing credit cards. When you're ready, tell us how you use a card and we'll match you on rate and fees.
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