When monthly full payment of CC isn't enough

fundamental

Hello,

I encountered what I consider to be unusual interest charges on my credit card recently and wondered if what I have been told is right - basically that it's completely normal.

It's not big money but it's potentially interesting..

In early September I withdrew some cash from an overseas ATM. My direct debit is set up to pay the FULL AMOUNT towards the end of the month. This was the impact on my bills...

1) The September bill comes and I get charged a few quid interest. Fair enough, to be expected.
2) The October bill comes and I get charged a bit less but still a few quid interest. !!!!!!????
3) The December bill comes and I get charged a few pence interest. Eh?

Now I would have thought that the Septermber payment would have been the end of it but after a very badly handled phone call, I was told that this is actually normal and all credit cards have interest handled in this way.

Can anyone explain this? Is it normal for credit card interest to be charged like this?

[Deleted User]

You need to clear two statements in full to stop interest, as it's charges daily, so that's !!!!!! you had interest in October. By the time you got round to paying September, you'd allowed more interest to build up. All very normal and to be expected.

You'll need to go through your transactions to see what generated interest for the third month.

bigadaj

fundamental wrote: »

Hello,

I encountered what I consider to be unusual interest charges on my credit card recently and wondered if what I have been told is right - basically that it's completely normal.

It's not big money but it's potentially interesting..

In early September I withdrew some cash from an overseas ATM. My direct debit is set up to pay the FULL AMOUNT towards the end of the month. This was the impact on my bills...

1) The September bill comes and I get charged a few quid interest. Fair enough, to be expected.
2) The October bill comes and I get charged a bit less but still a few quid interest. !!!!!!????
3) The December bill comes and I get charged a few pence interest. Eh?

Now I would have thought that the Septermber payment would have been the end of it but after a very badly handled phone call, I was told that this is actually normal and all credit cards have interest handled in this way.

Can anyone explain this? Is it normal for credit card interest to be charged like this?

Yes it's normal but you seem to have missed November?

If you take out money then you can credit that payment by bank transfer say a couple of days letter to minimise interest. However the problem is that the hierarchy of payment allows for payment for statemented items to be paid before any that aren't, so in your case mixing previous payments for goods and services and ATM withdrawals has complicated this on the same card.

In an ideal world you wouldn't have a statemented balance or would pay the statemented balance and cash withdrawals some aftere you withdrew through the ATM, thigh this obviously means you lose some of your interest free period on the purchased items.

SnowTiger

fundamental wrote: »

1) The September bill comes and I get charged a few quid interest. Fair enough, to be expected.
2) The October bill comes and I get charged a bit less but still a few quid interest. !!!!!!????
3) The December bill comes and I get charged a few pence interest. Eh?

Now I would have thought that the Septermber payment would have been the end of it but after a very badly handled phone call, I was told that this is actually normal and all credit cards have interest handled in this way.

The interest on October's statement would have accrued between time your September statement was produced and you made a payment.

Let's say September's statement was produced on 1st September and your DD paid the statement balance on 22st September. During that three week period interest is still building up and is added to October's statement.

No idea why you'be been charged interest on December's statement.

Terry_Towelling

Just to add a bit more to what's already been said, cash withdrawals attract interest from the moment they are taken, so (as you noticed) you will then get a statement with some interest on it. In the gap between getting your statement and paying it off, the cash withdrawal is still on your account accruing more interest. This then shows on your next statement.

When you pay this second statement off, most issuers will stop charging interest - either because the interest by then is down to only fractions of a penny or because their policy is only to charge interest on cash when the cash itself is not fully paid.

It sounds like Santander allows the interest itself to compound if it relates to a cash withdrawal, and they seemingly continue to do this until the amount is less than 1p - but I'm only guessing here.

fundamental

For 3) I meant November not December.

Since I have a direct debit to pay off any outstanding amount in full, why wouldn't the statement production time and direct debit time be on the same date so that everything can be paid off in full? It's not as if they need time to do the calculations by hand.

There is no reason that I can yet see for it to slip into the next month. Payment in full should mena exactly that, no?

Surely nobody is saying that these dates are deliberately set to rip people off?

[Deleted User]

No. No one is saying that.

What people are saying is that the gap between statement and payment accounts for the interest.

Obviously statement and DD date couldn't be the same as that would breach regulations by not giving you the prescribed notice.

born_again

fundamental wrote: »

F

There is no reason that I can yet see for it to slip into the next month. Payment in full should mena exactly that, no?

Surely nobody is saying that these dates are deliberately set to rip people off?

This is reason you do not take cash on a credit card.

Interest is calculated from day one on cash withdrawals.
A full DD is calculated on the statement balance on a given day. payment is then taken X days later.
You still owe interest on X days between statement & payment. Which again rolls over till the next statement.

If you do not have a balance or other spend on the card. If you take cash. Make a payment of that amount straight away. You will still get a few pence interest over 3 months.

It's not a rip off, it's how taking cash on a credit card works. Works the same if you use your credit card at gambling sites & foreign currency.

fundamental

Fair enough, I guess.

I had never considered the need to take this sort of thing into account when paying off in full. It's only because I had a single ATM withdrawal over that period that I noticed this at all. I'm glad that blind spot has been uncovered. Thanks all.

In summary, as I will almost certainly search on this again ...

If you shop around for credit cards and I guess everyone reading this does, then it's worth noting that having a deal with good currency conversion rates, no withdrawal charge and having a DD to pay off in full isn't enough to minimise costs.
You still need to make a separate payment fairly quickly after the ATM withdrawal.

PixelPound

Check the T&C. Halifax clarity says you get 56 days interest free unless it's not paid off in full.

For your case ...

1) The September bill comes and I get charged a few quid interest. Fair enough, to be expected.

That's interest from when you withdrew until statement date as interest comes straight away

2) The October bill comes and I get charged a bit less but still a few quid interest. !!!!!!????

Interest on the cash advance from statement date until you actually paid

3) The November bill comes and I get charged a few pence interest. Eh?

Interest on the interest from statement date until you actually paid

Assuming that interest bearing gets paid first (check t&c) your best policy is to pay the amount withdrawn ASAP after withdrawing it rather than waiting until the statement pay date. In addition assuming you will be using the card in October, over pay so that interest is completely covered in that payment. If you have used the card between septembers date and DD date then an overpayment of that amount or less but more than the interest means your balance won't be positive but stops interest charges.

born_again

fundamental wrote: »

You still need to make a separate payment fairly quickly after the ATM withdrawal.

Point to note on this.

If you have a outstanding balance. Any payment prior to statement date will go to the previous balance.
Not the cash transaction.