All of us know about the interest rates and annual fees that banks charge for credit cards. Those are the two things we look at when considering a new card. But have you ever wondered about the gazillion other charges that we hardly look up when researching for the right card? Here, we will describe the various hidden charges of a card and what they mean to you.
Foreign Currency Fee
Each time you use your credit card outside Singapore or shop online from foreign sites, the bank and your payment system will charge a percentage of the transaction amount as administrative or handling fee. There are two main charges that overseas transactions are subject to:
- Foreign currency transaction fee: When you pay for a transaction overseas or on online shopping sites outside Singapore, using your Singapore-issued credit card, the bank is actually converting the Singapore dollar into the foreign currency based on the day’s exchange rate. For this service, the transaction attracts additional foreign currency transaction fee, which constitutes two kinds of fees:
- Cross-border fee plus currency conversion fee – Mastercard and Visa charge 1% of the transaction amount as its cross-border currency conversion fee, while American Express charges 1% to 2.5%, depending on the credit card.
- Bank’s administrative fee – Every bank has its own administrative rate on foreign currency transactions. For example, CIMB charges 2% of the purchase amount, OCBC charges 1.8%, and HSBC charges 1.8%.
- Dynamic currency conversion fee: This is charged only by your payment network – Visa, Mastercard, American Express, or UnionPay – and is applicable when merchants have a dynamic currency conversion option on their payment machines. This means that instead of converting your Singapore dollar payments into the currency of the country that you are in, the card will pay directly using Singapore dollars. Visa and Mastercard charge 1% of the transaction amount under this heading, while American Express does not charge anything for this service.
Cash Advance Fee
When you withdraw money from your credit card, it’s not just the high interest rates that you have to be aware of. There is something called a cash advance fee that is applicable on the amount you withdraw. Most banks charge 5% to 6% of the withdrawn amount as cash advance fee. For example, if you are withdrawing S$1,500, a cash advance charge of S$75 to S$90 will be added to your credit card bill for the month.
When you get the credit card bill, you have a lot of flexibility in repaying the amount. You can either pay it in full, or in part, but there is a minimum amount that you need to pay every month. This minimum payment is dependent on and is usually a percentage of the total bill amount. Most banks require you to pay 1% to 3% of your total bill as minimum payment, but the least you can pay is S$50. Here is an illustration of what your minimum payment will be under different minimum payment requirements.
|Bill amount||Minimum payment @1%||>Minimum payment @3%|
|S$500||S$5 – but because the least you can pay is S$50, that amount will apply.||S$15 – but because the least you can pay is S$50, that amount will apply.|
|S$1,000||S$10 – but because the least you can pay is S$50, that amount will apply.||S$30 – but because the least you can pay is S$50, that amount will apply.|
|S$1,500||S$15 – but because the least you can pay is S$50, that amount will apply.||S$45 – but because the least you can pay is S$50, that amount will apply.|
|S$2,000||S$20 – but because the least you can pay is S$50, that amount will apply.||S$60|
|S$2,500||S$25 – but because the least you can pay is S$50, that amount will apply.||S$75|
So if the minimum payment requirement is 3%, then you have to pay S$50 every month unless your bill is higher than S$1,668, and if it is 1% then you have to pay more than S$50 only if the total bill goes beyond S$5,050.
Many banks need you to pay your previous months’ late payment charges, overdues on your credit limit, and the interest amount on the outstanding amount from the previous months along with the current month’s minimum payment. Let’s take the example of Rachel’s current credit card bill to illustrate this.
|Minimum payment due @3% of current bill||S$50|
|Late payment charges from previous month||S$80|
|Overdue on credit limit||S$1,000|
|Interest amount from previous months||S$800|
|Total payment due||S$3,208|
|Total minimum payment due||S$1,930|
Late Payment Charges
Late payment charges are applicable on your credit card bill if you do not pay the minimum amount required, by the bill’s due date. Most banks charge a flat rate of S$80 to S$100 as late payment charges. Paying even one day after the due date will attract late payment charges, even if the whole bill amount is paid.
0% IPP Charges
The 0% Instalment Payment Plan (IPP) is offered on almost all credit cards. Under this plan, you can purchase a costly item on your credit card by splitting the payment over several months instead of making a single payment and attracting full interest charges. So let’s say you buy a storage bed at S$1,200 on a 6-month instalment plan. Ideally, you will be paying S$200 per month. But if you miss even one payment, the prevailing interest rate will be applied on the amount. Also note that even if the interest charge says 0%, you will be charged a one-time processing fee (in most cases), usually between 3% and 6% of the transaction amount. Hence, the 0% in this case is only the applied interest rate and not the effective interest rate.
Here are some other card fees that we don’t usually think about:
|Fee||Explanation||>Usual charge by banks|
|Over-limit fee||This fee is applicable when you spend more than your approved credit limit.||Usually S$40|
|Reward point redemption fee||If you convert the accumulated reward points into vouchers or miles, you may be asked to pay a certain amount.||Differs from bank to bank|
|Card replacement fee||This is applicable if your card is lost or stolen and you need a replacement.||Zero to S$30|
|Termination fee on 0% IPP and other payment plans||This is applicable if you pay off all your instalments without waiting for the tenure to end.||Up to S$250 or 3% of the balance amount|
|Returned cheque charges||If you use cheque to pay the card bill and the cheque bounces because of low balance in your account, then you will have to pay this fee.||Up to S$40|
|Sales draft or statement retrieval fees||If you ask for a hard copy of your credit card statement or sales draft, you will have to pay this amount.||Up to S$100, depending on the number of months/years for which you want statements|
It is important for you to be aware of all the fees and charges applicable on your credit card, to be able to plan your expenses well. It will also ensure that you are not surprised by any unfamiliar charge appearing on your monthly bill. For the full list of charges, refer to the credit card agreement and policy wording provided by your bank.