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How do interest free days work?
Smart Money

How do interest free days work?

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We believe this is one of the most important things to understand about managing your credit card. If you understand this properly and pay off your balance each month, you can effectively avoid paying interest.  If you want to hear about some key points, check out Tom talking about the concept in the video below.

What are interest free days?

First, as simple a definition as possible;

Interest free days are the days when you don’t have to pay interest on your credit card. Each month the bank or issuer allows this certain period of time to the customer to be able to make purchases on their card and then pay the bank back for it before the end of that period.  If you don’t pay the whole amount back, you won’t be entitled to any interest free days in the next period

How do interest free days work?

The interest free days run from the start of that credit card’s ‘statement period’ up to the payment due date. You will see the statement period and payment due date clearly outlined on your credit card statement. You can also call your bank or issuer and check these date if you’ve recently got your card and don’t have a statement yet.

Below in example 1 (a copy of my statement period) – the statement period and payment due date are clearly highlighted.

Example 1

credit card statement screenshot

Any purchase made in the statement period must be paid for by the 28th April in order to avoid interest charges. (If I only pay $30 towards the closing balance I will still get charged interest on the remainder. I will also receive no interest free days in the next statement period).

The interest free days for this particular statement period are the days from the 4th March to the 28th April. If a purchase is made on the first day of the statement period, it doesn’t need to be paid for until 28th April – a total of 55 days.

If a purchase is made on the last day of this statement period (3rd April) a payment still has to be made by 28th April, so there are only 24 days left to pay before being charged interest.

In example 1 you can see the statement period finishes on the 3rd April, so a new statement period will begin on the 4th April, (example 2 below).  A new payment due date is applied to the new statement period.  Any purchases made from 4th April – 3rd May need to be paid for by the new payment due date.

Example 2

credit card statement screenshot

Things may appear more confusing as statement periods don’t match the exact months. You can see in the two examples that if you buy something on the 1st April it will need to be paid for by 28th April, as it falls within the first statement period. However if you buy it on the 4th April it falls in the second statement period, it won’t need to be paid for until 28th May.

This is why knowing your statement period and payment due date for that period is essential if you can’t afford to pay the purchase off on card quickly. Some banks or issuers may change the dates if you ask them too, it might mean that you can organise your card usage and payments if they structure it around your monthly salary pay date.

Key points to remember

  • The dates of the statement period, the minimum amount payable and the payment due date vary according to each account. Check these details closely on the credit card that you have.
  • If you want the maximum number of interest free days, you should make a purchase at the beginning of the statement period.
  • If you make purchases and then don’t pay for them all by the time the bank want you to (payment due date), you will get charged interest on whatever balance remains.
  • If you don’t pay off the whole outstanding balance, you will NOT receive any interest free days in the new statement period. The bank will not tell you this on your statement – it’s in the terms and conditions.
  • Some credit cards offer 55 interest free days, some 44 interest free days and some No interest free days at all. Check these details with before applying for a card or using your card.

Photo source: Shutterstock
Founder - Roland B Bleyer

Roland Bleyer

Founder of Roland has extensive knowledge about credit cards in Australia. Known as a credit card expert, he has been featured on tv and in various publications. Some popular offers on our site right now include the ANZ Low Rate. This special offer has no annual fee first year, a low purchase rate and long 0% balance transfer. Have a look also at the huge 0% for 30 months balance transfer from Citi with no balance transfer fees.

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