Credit card fees explained

Ready to get a new credit card? Before you start, there's something you’ll want to be clear on — credit card fees. Credit cards have various fees that you could be charged for different reasons. We're going to break down the credit card fees you should be aware of before applying for a credit card.

Credit card interest rates

When you make purchases on your credit card, you're buying with credit. You’re given a credit limit on your card and you can spend up to that amount (though keeping your balances low is a good idea). Once you pay off your total balance for the current billing cycle, your available credit resets back to your credit limit.

Paying off your balance in full by the due date every month also means paying no interest on purchases, which we recommend. If you don't end up paying your balance off in full on your credit card, you'll be charged credit card interest.¹ 

Credit card interest rates are usually referred to as Annual Percentage Rates (APR). This is the cost of borrowing money listed as a yearly interest rate. Credit cards may have two rates: one for purchases and one for cash advances (more on cash advance fees later). When you make purchases on your credit card and don’t pay off the full balance during the grace period (usually 21 – 25 days), you’ll be charged interest on the outstanding balance. However, for cash advances, there’s no grace period and you’ll start getting charged interest on them immediately.

Credit card interest rates can vary depending on the credit card issuer as well as your credit history. If your credit score is in good shape, you may qualify for a lower rate. But if your credit score isn't so great, you might pay for it in the form of higher interest rates.

Credit card annual fee

Another fee to pay attention to is the annual fee. But what does an annual fee really mean? The annual fee is a fee that’s charged by the credit card issuer (like your bank) to the cardholder each year. This fee is fixed and not affected by things like how much of a balance you’re carrying or how much you pay off every month.

Credit cards with annual fees are often rewards credit cards that offer cardholders enhanced perks, cash back, reward points or miles at a higher earn rate than cards with no annual fee. Sometimes, the credit card annual fee will be waived for the first year as a promotion. If that's the case, you’ll want to know how much the credit card annual fee is before you get charged. If you want to avoid credit card annual fees, make sure to choose a card with no annual fee.

Cash advance fee

Are you in need of some fast cash? One option is to get a cash advance from your credit card. A cash advance allows cardholders to take out cash at an ATM from their credit card account (instead of their bank account). So if you're in need of a short-term cash loan, your credit card is one funding source to consider.

But don’t forget that cash advances come with additional costs. The lack of a grace period means you’ll be charged interest from the day you take out the money, and usually at a higher interest rate than for your other purchases on your card. Plus, there may be a small upfront fee you need to pay.

Foreign transaction fees

If you're headed out for a getaway with your passport in hand, you’ll want to know about foreign transaction fees ahead of time. Foreign transaction fees are charged when you use your card in another country or make purchases in a currency other than Canadian dollars (or vice versa in the case of US dollar credit cards). When you use your credit card internationally to buy something, you could be charged with foreign transaction fees. The percentage you get charged is typically 2.5 percent of the value of the purchase. You’ll also be charged the foreign exchange rate of the day based on the country you travel to.