Spot the most expensive charges on a card statement and avoid them.
Three card charges catch people out more than any others: the cost of a cash advance, the cost of paying late, and the cost of spending in a foreign currency. Setting your card to pay the full statement balance automatically each month prevents most of them.
Interest on a balance you carry over is the card cost nearly everyone has heard of. The charges below are quieter. They come from fees and rules, and you only see them if you go through your statement one line at a time.
Jun Hao, from the Bangkok trip in Lesson 2.1, How the interest-free period works and how you lose it, ran out of baht on his last evening there. He used his credit card at an ATM to withdraw S$500 worth. Putting the card in the machine felt the same as using a debit card. When he looked at his statement a month later, he counted three separate charges linked to that one withdrawal, and the S$500 was not one of them. (Jun Hao's figures throughout are invented for the example.)
What he did was take a cash advance: cash drawn on a credit card, either from an ATM or over a counter. On some cards, certain transfers and payments also count as cash advances, and your card's terms list which ones. Banks handle a cash advance on quite different rules from a purchase. Each withdrawal usually attracts a fee, often worked out as a percentage of the amount with a minimum charge. Interest usually runs from the day you take the cash. There's no interest-free period, so paying the whole statement on time does not stop it. The rate may also be higher than the one your card charges on purchases.
Two of Jun Hao's three charges were the fee and the interest. Suppose his card takes 6% of the amount as the fee and charges 28% a year in interest, worked out daily from the date of withdrawal; both rates are made up. A 6% fee on S$500 comes to S$30. Thirty days of interest is S$500 x 28% x 30 / 365, roughly S$11.51. He paid about S$41.51 in total to borrow S$500 for one month, and that is before any overseas charges.
The third charge was an overseas ATM fee, taken by the Thai bank whose machine he used. The foreign bank would have charged it whichever card he had chosen.
Before your next trip, find the cash advance fee and interest rate in your credit card's terms. Find the overseas withdrawal fees in the fee schedule for your debit card and for any other account you could draw on. Put the figures side by side and decide in advance which one you'll use for cash.
A payment below the minimum, or one made after the due date, usually brings two costs. The bank charges a late payment fee, and it charges interest on the balance left unpaid, in the way Lesson 2.1 set out.
Every month, card issuers send repayment records to Credit Bureau Singapore, which means a late payment can show up on your credit report. As Lesson 1.3, What moves your risk grade up or down, explained, late payments harm a credit report more than anything else on it, and repeated ones harm it more. You pay the late fee once. The entry on your report can still affect the rate a lender offers you on a car loan or personal loan several years on.
Your card's terms give the late fee amount and say whether a first late fee is waived. Some banks will waive one if you ask and others will not, so plan as though you'll pay it.
When you pay in a foreign currency, at a shop abroad or on an overseas website, the bank that issued your card converts the amount into Singapore dollars. The card company, such as Mastercard or Visa, also charges your bank an international transaction fee. Your card's terms and conditions set out any foreign transaction fee your bank charges you on these purchases, and MoneySense explains how these charges work. With a 3% fee, an example rate, S$1,000 worth of overseas spending costs S$30 in fees. Look in your card's terms and conditions for the percentage it actually charges.
Sometimes a shop or website abroad will offer to bill you in Singapore dollars instead of the local currency. This is called dynamic currency conversion. The merchant's provider sets the exchange rate, and it is often worse than the rate your card would use. Depending on the card, the bank's foreign transaction fee may be added on top as well. When you're given the choice, pick the local currency, which usually works out cheaper. To be sure on a given purchase, compare the two amounts before you pay.
A small number of slips account for most of the expensive charges on a card: a due date missed, a balance left slightly unpaid, and cash withdrawn because it was convenient. Automatic payment of the full statement balance from your bank account handles the first two. You can arrange it by GIRO or through your bank's own setup for its cards. Once it runs, you don't have to remember the due date, and because the whole balance is paid, purchases attract no interest.
Three checks matter when you set it up:
The instruction pays the full statement balance and not just the minimum. The account it draws from will have enough money in it on the due date. You still read every statement line by line, since automatic payment settles whatever appears, including errors and fees you didn't expect.
Jun Hao plans to turn on automatic full payment in the month he clears his balance. In the meantime he went through his last three months of statements to find what he had been paying without noticing: cash advance fees and interest, late fees, and foreign transaction fees. That review is the next step for you, with your own statements open beside you.
Go through your last three card statements. List every fee and interest charge, and note what caused each one.
Junxiong-WFG Organisation is an authorised representative of AIA Financial Advisers Private Limited (Reg. No. 201715016G).