Interest-free days on credit cards explained (and how you lose them)

Interest-free days are the period between a purchase and the payment due date during which no interest is charged, provided you pay the full closing balance by the due date. A card advertised with "up to 55 interest-free days" usually has a statement period of about a month plus around 25 days to pay, so a purchase on the first day of the statement period gets the full 55 days and a purchase on the last day gets only the days until the due date. If you do not pay the closing balance in full, most cards stop giving interest-free days on new purchases until the whole balance is cleared, and cash advances and balance transfers generally never get them. For a rewards card, interest-free days are what makes the points free; lose them and the card becomes expensive.

This guide is part of the comparison overview. Terms vary by card; the numbers below are illustrative.

How the count works

• Purchase on 1 June: interest-free until 25 July = 55 days (counting the day of purchase, as the "up to 55 days" figure does).
• Purchase on 15 June: 41 days.
• Purchase on 30 June: 26 days.

Cards advertised with "up to 44 days" typically have a shorter time between statement and due date. The Key Facts Sheet shows the maximum; the statement shows the real due date. See reading the Key Facts Sheet.

What switches interest-free days off

Each card's terms say exactly when interest-free days apply. Common conditions on Australian cards:

1. Not paying the closing balance in full by the due date. Interest is then usually charged on the unpaid balance and, on many cards, on new purchases from the date they are made, until you have paid a full closing balance again (sometimes for two consecutive statements).
2. Carrying a balance transfer. On many cards, while a transferred balance is outstanding, new purchases do not get interest-free days unless you also pay the transferred amount in full. This is one reason to avoid spending on a balance transfer card; see the balance transfer example.
3. Cash advances. Interest normally starts on the day of the transaction, plus a cash advance fee. See cash advance costs.
4. Cash-like transactions such as buying foreign currency or gift cards, or some gambling and wallet top-ups, which some issuers treat as cash advances.

Australian law prevents one particular trap: since the credit card reforms, an issuer cannot charge interest retrospectively for a period because of something that happened later (section 133BS of the National Consumer Credit Protection Act 2009). In practice that ended the old practice of back-charging interest on the part of a balance you had already paid once an interest-free period was lost. Interest can still apply going forward on the unpaid balance and new purchases as the terms allow.

Worked example: missing the full payment by $100 (illustrative)

Ana's statement closing balance is $2,400, due 25 July, on a card with a 20.99% purchase rate. She pays $2,300 on the due date, leaving $100.

• Interest is charged on the $100 unpaid from the due date, which is small.
• But under her card's terms, purchases made in the next statement period lose their interest-free days. She spends $2,000 during August, spread evenly.
• Interest on those purchases from their purchase dates to the end of August: roughly $2,000 × 20.99% × (15 ÷ 365) ≈ $17.
• If she then pays the next closing balance in full, interest-free days return.

A $17 charge is about what she would earn in points on around $2,100 of spending at 1 point per dollar valued at 0.8 cents, so one short payment can cancel most of a month's rewards. Paying the closing balance by direct debit avoids this entirely.

Pay the closing balance, not the "available" or minimum amount

Your statement shows several figures:

Under section 133BQ of the NCCP Act, your payment is applied first to the highest-rate part of the last closing balance. If you have a mix of cash advances and purchases, a partial payment clears the cash advance first.

Setting up the card so you never pay interest

1. Set a direct debit for the full closing balance from a transaction account.
2. Keep a buffer in that account, or align the due date with your pay cycle; some issuers allow a change of due date.
3. Turn on alerts for statement issue and payment due.
4. Avoid balance transfers on the same card you use for everyday rewards spending.
5. Do not use the card for cash or cash-like transactions.

Frequently asked questions

Do interest-free days apply to balance transfers?

No. Balance transfers get a promotional rate, not interest-free days, and when the promotion ends any remaining balance is charged the revert rate.

Does paying early earn more points or more interest-free days?

Paying early does not change the points you earn and does not add interest-free days, but it does reduce the risk of missing the due date.

Is there a card with no interest-free days?

Some cards, usually low-rate cards with very low or no annual fee, offer no interest-free period, so interest starts from the purchase date. Check the Key Facts Sheet.

What if the due date falls on a weekend?

The card's terms explain how payments are treated on non-business days. Allow time for transfers from other banks to arrive.

Sources and where to check

• Federal Register of Legislation — National Consumer Credit Protection Act 2009, Part 3-2B Division 7 (interest under credit card contracts)
• ASIC Moneysmart — credit card interest and interest-free days
• Australian Financial Complaints Authority — disputes about interest charges