Credit Card Fees — Is your credit card costing you?

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Credit card fees are sneaky sharks hiding under the radar. They smell blood and prey on our lack of awareness. It's time we bite back!

I still remember that when I got my first credit card, I was just a naive teenager that was too excited to be reading their fine prints.

“What could possibly go wrong?”

Well, I don’t know… Probably nothing, except maybe losing a few hundred ringgits *shriek internally*.

It wasn’t a game-changing amount of money but it was a sizable chunk of money for me. Oh yes, I definitely felt the burn. I lost money because I didn’t fully understand the fee structure of a credit card — what is free and what is not — and I end up paying credit card fees for something that could’ve been free.

It made me wonder… what other unexpected charges are out there?

I was slightly annoyed by the fact that most banks write their fee description in a very vague one-liner that is difficult to understand. Sometimes, it makes me question if this is intentional so that people fall into these traps (probably not, I’m just thinking non-sense, please don’t sue me).

In any case, I wanted to bring awareness and hopefully, clarity to some of the most common credit card charges. Who knows, maybe I’ll be able to save someone from the dreaded cash advance fees.

DISCLAIMER: Before we start, I should point out that all credit cards have slightly different fee structures and charges so always refer back to the bank’s official website for the most accurate information. Here are HSBC and Maybank’s official credit card fees as a reference. As much as I would love to, I’m not affiliated to-, or sponsored by any of the banks.

  1. Annual Fee
  2. Service Tax
  3. Late Payment Charges
  4. Financial Charges
  5. Balance Transfer
  6. Over-Limit Fee
  7. Cash Advance
  8. Conversion for Overseas Transaction
  9. Replacement Card
  10. Monthly Statement Fee
  11. Monthly Statement Retrieval
  12. Sales Draft Retrieval
  13. Bonus: The Unwritten Fee

Annual Fee

I knew Netflix has subscription fee but hot damn, even credit cards too?

Annual fee is exactly that. A maintenance fee that you pay yearly to the credit card provider so they don’t cancel your credit card.

Banks charge different annual fees for their credit cards depending on the tier.

  • Basic credit cards usually don’t have any annual fee.
  • Mid-tier credit cards has an annual fee of RM300 ~ RM500.
  • The truly luxurious and premium ones can go all the way up to RM 3000 per year. 

It’s worth mentioning that some credit card’s annual fee can be waived entirely if you spend over a certain amount per year. For some, they don’t even care about the amount you spend but they need you to call the bank to waive the fee.

Read the fine prints of your credit card terms and conditions, it might just save you a couple hundred ringgit.

Service Tax

Service Tax is a credit card fee that you have to pay every year just like Annual Fee, except that it’s a standard flat RM 25 across all credit cards as mandated by the Royal Malaysian Customs Department.

Under the Service Tax (Rate of Tax) Order 2018, we have to pay RM 25 annually for every principal and supplementary credit cards that we own. The Service Tax is charged on the date that the credit card is activated and then every subsequent year when it is renewed.

This is just a plain and simple, non-negotiable, suck-it-up-and-pay kind of fee.

If you have one too many credit cards laying around doing nothing, consider cancelling them instead.

Late Payment Charges

When you swipe your credit cards, you are not actually using your own money. In fact, you are borrowing money from the bank. Last time I checked, when you borrow, you have to pay it back.

All credit cards have what is called the “minimum monthly repayment”, which is essentially the minimum amount that you have to pay back to the bank every month. This is usually around 5% of the outstanding balance or a minimum of RM 50, whichever is higher. So if you spend RM 2000 this month, you would have to pay back the bank at least RM 100 this month.

Otherwise, the bank gets to charge you a late payment fee. It’s usually 1% of the credit card outstanding or a maximum of RM 100, whichever is higher. Let’s say that if you spend RM 2000 and you didn’t make your minimum monthly repayment, you now owe the bank RM 2020 instead of the initial RM 2000.

However, I don’t recommend paying only the minimum monthly repayment, and I’ll explain why in the Financial Charges section.

Financial Charges

This is a big one.

Even though you’ve paid the minimum monthly repayment, you might get hit with what’s called a “Financial Charges”. Financial charges is a credit card fee that the bank charges you for not paying the preceding month’s credit card statement in full. Whatever balance that you still owe the bank will be charged with a whoopin’ 15% to 18% interest rate per annum, accrued on a daily basis.

For example, if you spend RM 2000 on your credit card and you paid off the minimum monthly repayment of RM 100, you would still owe the bank RM 1900. By that logic, the bank gets to penalize you for RM 285 (15% of RM 1900) per year.

But if you don’t even make the minimum monthly repayment (i.e: you just forgot to pay your credit card bill), the bank will slap you with both the Late Payment Charges and the Financial Charges. As you can see, that adds up very quickly and will spiral out of control before you even know it.

My advice is to always pay your credit card in full every month. Use credit cards for the convenience it provides, not to borrow your future money from the bank.

Balance Transfer

If your credit card debt is going out of control, you may consider doing a “balance transfer”.

Balance Transfer is the act of moving outstanding debt from one credit card to another credit card, preferably with lower late payment penalty, or interest rates or even better benefits. It can be a really clever way to turn a disastrous financial situation into a bad-but-not-as-bad situation.

The bank would typically charge you a 3% upfront fee to execute the balance transfer, and then waive your debt’s interest rate on the outstanding for the first 12 months.

Okay, it might be a bit easier to understand with an example. Let’s say that you have a RM 10,000 credit card debt and they are charging you 18% interest rate. That’s RM 1800 in interest per year. If you do a balance transfer to a new credit card, the bank will charge you RM 300 (3% upfront fee) and you won’t have to pay the 18% interest for a year, saving you a total of RM 1500 in interest.

BUT-

Please be mindful that even after you transfer to the new credit card, you need to make sure that you always pay off the minimum monthly repayment every month. If you miss even a single month, you will lose the 0% interest on the first 12 months and the bank will again, charge you the default financial charges (15% ~ 18%) plus any penalties.

As you can see, executing this balance transfer has got a lot of intricacies and fine prints that you need to be fully aware of. I’m not a trained professional in credit cards and this post is merely an introduction to the possible credit card fees that a bank can charge you. I highly recommend speaking to a specialist to help you through the process as we won’t be able to cover all of that here.

Over-Limit Fee

There are points in your life where you spend juuust a tiny bit more than usual – like buying an iPhone 12 and one too many bubble teas. If you add up the other expenses on your credit card, you might exceed the credit limit that the bank gave you.

If your credit limit is RM 10,000 and you spent more than that within the month, you will be charged an Over-Limit Fee of RM 25 per month until your credit card outstanding drops lower than RM 10,000.

You should check with your bank for your credit card limit. Consider getting it revised to an appropriate amount.

Cash Advance

Cash advance means that you’re getting cash in advance.

If you go to the ATM machine and withdraw money with a debit card, you’re taking your own money out of your bank account balance. But if you’re using a credit card, you’re borrowing cash money from the bank and they will deduct the amount against your credit limit instead.

Banks typically charge around 5% of the cash amount, and then 18% interest rate per annum, but calculated on a daily basis.

It’s gonna get ugly, are you ready?

Let’s say you withdrew RM 1000 cash with your credit card on the 1st of January and only managed to pay it back on the 1st of February. The bank will charge you RM 50 (5% cash amount) and then ~RM 15 (RM 1000 * 18% / 365 days * 31 days) in fees.

It’s just not worth it. Unless it’s an emergency, never use your credit card on an ATM machine. Always have a debit card in your wallet to withdraw cash.

Conversion For Overseas Transaction

This is probably going to be the most confusing fee so far. Brace yourself!

There are two parts to it, the Foreign Transaction Fee (FX Fee) and Dynamic Currency Conversion (DCC).

I’ll spare you the jargon.

Assuming that you are a Malaysian and you went for a holiday in Thailand. When you spend, the merchant might ask if you want to pay in their local currency (Thai Baht, ฿) or your country’s currency (Ringgit Malaysia, RM). This is what’s known as the Dynamic Currency Conversion.

Let’s take a look at how both the situations play out, starting with paying in local currency.

If you choose to pay in their local currency (Thai Baht, ฿), the credit card network (e.g: Visa International / MasterCard International) decides the foreign currency exchange rate, and then charges you a 1% transaction fee for the trouble. At this stage, your currency has been converted and is ready to be used. But then your credit card issuer (e.g: Hong Leong Bank, Maybank) will also charge you a Foreign Transaction Fee (FX Fee) on top of that. The FX Fee is generally 0% to 2% but it’s different for every credit card and you should check for the actual amount on your bank’s website. At the end of the day, if you use your credit card and pay in Thai Baht, expect to pay approximately 1~3% extra in total.

Pricey, but transparent and straightforward.

However, if you choose to pay in your country’s currency (Ringgit Malaysia, RM), the merchant then gets to decide the currency exchange rate. This is where it gets really painful. The merchant is incentivized to charge a less-competitive and unfavorable currency exchange rate to mark-up their product’s price. Afterall, higher price means higher profits for the merchant, but that would also mean that you have to pay more.

That’s not the end of the story yet. Even though you are technically paying in Ringgit Malaysia now, don’t forget that you are still using your credit card in a foreign soil which means that you still have to consider the Foreign Transaction Fee (FX Fee). Your credit card issuer (the bank) MIGHT still charge you a 0~2% for the Foreign Transaction Fee (FX Fee). Note the keyword “might”, because it depends on the fine print of your credit cards. Do they consider spending foreign currency in foreign soil a “foreign exchange”? But what if you are spending Ringgit Malaysia in a foreign soil? Is that “foreign exchange”? So it depends.

All in all, I recommend not to pay in your home country’s currency because it’s less transparent, and tends to be higher than the 1~3% had you chosen to pay in local currency instead.

Replacement Card

On the rare occasion that if you lose your credit card, or your dog swallowed it, the bank will charge you a replacement card fee. They usually go for about ~RM 50 per replacement. Just don’t misplace your credit card and you’ll be fine.

Monthly Statement Fee

Banks will mail you a physical copy of your credit card monthly statement. They will charge you ~ RM 1 per monthly statement.

If you don’t need that, you can opt for an electronic monthly statement. Instead of a physical copy, the bank will email it to you and they usually don’t charge for that.

Monthly Statement Retrieval

Upon request, banks can print out your current or even previous month’s statement for you. As in, if you need a physical copy of a specific month’s statement, they can search through their bank system and give it to you.

Banks typically charge RM 5 per statement. Some banks might charge you as high as RM 20 to retrieve statements that were dated more than 12 months ago.

Sales Draft Retrieval

When we make a payment with credit cards, the merchants should always give us two documents — a receipt and a sales draft.

The receipt is something that we are familiar with. It is a document acknowledging that a person received payment for the goods that they are providing. It contains the names of the goods and its price.

On the other hand, a sales draft contains information about the transaction itself, such as the credit card number, transaction identification number (TID), merchant identification number (MID), card expiration date, description of what is purchased and etc.

While I always chuck my sales draft into the bin without looking, there are times when this piece of document can come in handy. For example, when we don’t recognize a charge on our credit card, we can speak to the bank to retrieve a sales draft copy that will hopefully shed some light on the purchase.

The bank charges a sales draft retrieval fee, usually ~RM 20 each, if and only if the credit cardholder asks for the document.

The Unwritten Fee

Okay, this is not a fee, but an disadvantageous shift in mindset that a credit card can bring.

When we make a purchase with a credit card, all we need is just a simple swipe and we can have anything that we want. It’s like infinite money, except that we are technically borrowing money from our future self.

This act of “borrowing” money rewards our present self with instant gratification and delays the pain of forking out money into the future. Doing so entices us to spend more. It’s all rainbows and unicorns until we see the upcoming monthly statement.

On the flip side, when we use cash, we need to have the physical dollar note in our wallet. Every time we want to buy something, we have to take a look inside our wallet, take the money out, count it and then pay the correct amount to the cashier.

This simple motion keeps us honest because we are aware of the money that we have. It’s finite and we cannot spend more than what we have.

Look, I’m not saying that credit cards are evil. In fact, I’m a huge proponent for using credit cards because of the cash backs, benefits and convenience a credit card can offer.

But as the wise Uncle Ben would say, “With great credit cards, comes great responsibility”.

We just need to be responsible with our financial planning. I recommend recording our expenses as a great way to keep your credit card spending in check because at least we can look back and reflect upon our expenses.

I know, I know… This advice is arguably the most cliché of clichés. But it’s true.

When we track our expenses, we will suddenly realize how in the hell that 50% of your income went into the most random stuff last month. Maybe we can cut down on that. Tracking your expenses really helps you gain perspective on how much you are spending and where your money is going.

My 2 Cents

Aaaand… I think that’s pretty much everything you need to know about credit card charges!

Credit card department is one of the biggest profit centers for banks. If they are making banks (pun intended) from credits cards, someone must be contributing to their profits.

Are you that person?

Psst… Every time you share, you help someone somewhere to become a frugal millionaire!

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About Me  

Casey Cheng is the author/owner of frugal-millionaire.com. Graduated with a Masters in Engineering, he can calculate the square root of 3 in his head but the answer often reminded him of his bank account balance. Eager for a change, he embarks on a personal mission to find his pot of gold and hopefully, through sharing, inspire people to start their own journey on becoming a frugal millionaire.

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