How Amex calculates interest..

[lobo76]

Not sure if this is the appropriate place for this but I just got off the phone with Amex Platinum helpdesk regarding interest charges on my card.
I usually pay off the full balance on my card but this month it coincided with my Mortgage payment date and I don't like to let the account get too low in case any other payments come out that I'd forgotten about. As a result I left $1000 owing on the account (which I pad a couple of days later once my next pay run had gone through).
I was surprised to learn that if you underpay by even a dollar you get whacked with interest for the whole outstanding balance, rather than the difference still owing!?

This might not be news to some of you, but I couldn't find a thread in search so I thought I'd pop this up...

 

[k3nnis]

Is yours a charge card or credit card?

 

[lobo76]

Sorry. Should have said, it's the povo Edge credit card

 

[k3nnis]

ok thanks. I think I paid 1 day late before and never got charged I think....

 

[lobo76]

ok thanks. I think I paid 1 day late before and never got charged I think....

Yea I think they are a little lenient with paying a day late sometimes, but this was about the amount rather than the date.

 

[wxxnxs]

I was surprised to learn that if you underpay by even a dollar you get whacked with interest for the whole outstanding balance, rather than the difference still owing!?

This might not be news to some of you, but I couldn't find a thread in search so I thought I'd pop this up...

Correct, AMEX is not the only who charges the interest like this, most banks do the same. Not even $1, but also $0.01 shortage, you will get charged WHOLE balance of interest on your last bill plus the on going transactions unless you pay the full amount off (including transactions occurred at the moment). You need to pay two consecutive bills in full to gain interest free days again. Alternatively, if you would like to get interest free days again without delaying, just pay the full amount owing on your card right now plus a few amount extra to cover the accrual interests.

 

[yohy?!]

'backdated' interest - watch out for it

 

[lobo76]

Correct, AMEX is not the only who charges the interest like this, most banks do the same. Not even $1, but also $0.01 shortage, you will get charged WHOLE balance of interest on your last bill plus the on going transactions unless you pay the full amount off (including transactions occurred at the moment). You need to pay two consecutive bills in full to gain interest free days again. Alternatively, if you would like to get interest free days again without delaying, just pay the full amount owing on your card right now plus a few amount extra to cover the accrual interests.

Gah, so in order to avoid more dodgy interest I need to pay off the current charges even though they aren't due til July 26th? :/

 

[opusman]

Yeah that's pretty standard. Basically the "interest free period" on most cards is subject to repaying the full balance before the due date.

 

[wxxnxs]

Gah, so in order to avoid more dodgy interest I need to pay off the current charges even though they aren't due til July 26th? :/

Yes, you need to pay off the current charges as well as a bit extra amount to cover the interest which is accruing. If you wait until the due date, then the interest will be kept charging until then.

 

[Pukka]

I've paid off the full amount & noticed that if I hadn't paid the full amount off the month before there was an interest charge. Every time I've called them about it they've said " oh yes that's a trailing interest charge but because of your good standing we'll waive it " and that's it instant credit for $300 or more!! I think it's a bit of a scam that they hope you won't notice. It pays to either pay off the whole balance on a CC or the minimum as far as I can see as you don't get any interest reduction for paying off say half until the following month

 

[lobo76]

I've paid off the full amount & noticed that if I hadn't paid the full amount off the month before there was an interest charge. Every time I've called them about it they've said " oh yes that's a trailing interest charge but because of your good standing we'll waive it " and that's it instant credit for $300 or more!! I think it's a bit of a scam that they hope you won't notice. It pays to either pay off the whole balance on a CC or the minimum as far as I can see as you don't get any interest reduction for paying off say half until the following month

Yea I got the credit too. It seems so counter intuitive to me, but for-warned is for-armed, I'll either be paying it all or just the minimum in future, better to have the extra cash in my mortgage offset than giving it to Amex!

 

[medhead]

The trailing interest is hardly a scam. The statement includes the interested charge up to the issue date. It then takes you a number of days to pay of the balance and interest is accruing in that time. So, of course, interest will be charged on the next statement.

The other thing you need to be aware of, besides backdating the interest to purchase date, is for many cards, eg ANZ cards, to stop interest accrual in the following month it is not simply a matter of paying the balance plus an allowance for interest already charged. You have to keep the card debt free until the next statement date. If you bring the card to zero it a credit situation they will charge interest if it goes back to a negative balance.


Sent from the Throne

 

[medhead]

Yea I got the credit too. It seems so counter intuitive to me, but for-warned is for-armed, I'll either be paying it all or just the minimum in future, better to have the extra cash in my mortgage offset than giving it to Amex!

Wrong! Absolutely wrong! The interest on your mortgage is about 7 or 8%. The interest on your Amex is 20%. By adopting this approach you will be paying an extra 13% in interest to AMEX. It is always better to pay off your highest interest bearing debt first.


Sent from the Throne

 

[rechoboam]

What I have never understood - I pay off the debt in full 2-3 times per month. If when the statement comes out I have racked up $1000 in new debt since paying the card off the week before do I still need to pay that 1000 off?

 

[medhead]

What I have never understood - I pay off the debt in full 2-3 times per month. If when the statement comes out I have racked up $1000 in new debt since paying the card off the week before do I still need to pay that 1000 off?

It should tell you the minimum payment required. I've seen this as zero in the situation you describe, but not sure which card was involved.

However, if you do not want to pay interest you need to pay the full closing balance on each statement by the due date.


Sent from the Throne

 

[k3nnis]

Get a charge card and you will probably pay the balance in full each month

 

[lobo76]

Wrong! Absolutely wrong! The interest on your mortgage is about 7 or 8%. The interest on your Amex is 20%. By adopting this approach you will be paying an extra 13% in interest to AMEX. It is always better to pay off your highest interest bearing debt first.


Sent from the Throne

My point was that if I can't for some reason pay the balance in full on a given month that there's no point paying 75% of it as I get charged the full interest anyway, so the 75% - minimum fee is better off sitting in the offset until I reach the new billing period when I pay the total outstanding. No?

 

[opusman]

My point was that if I can't for some reason pay the balance in full on a given month that there's no point paying 75% of it as I get charged the full interest anyway, so the 75% - minimum fee is better off sitting in the offset until I reach the new billing period when I pay the total outstanding. No?

The interest is probably calculated daily, so the more you pay off the sooner, the less interest you'll pay.

 

[medhead]

My point was that if I can't for some reason pay the balance in full on a given month that there's no point paying 75% of it as I get charged the full interest anyway, so the 75% - minimum fee is better off sitting in the offset until I reach the new billing period when I pay the total outstanding. No?

Interest is not only backdated but it is also charged daily for as long as there is a debit balance. So you will be paying 20% interest on the balance on the card even day you have that 75% sitting in your offset account saving you 7%. The idea is to have minimum balance as long as possible.

Personally I manage my mortgage such that I am always 2 weeks to a month in advance. Interest. Is charged daily and added to the mortgage at the end of the month. Therefore, I most effectively minimise my interest by making my mortgage payment on the first day of the month, regardless of when it is due. Minimum balance as long as possible. In this way if I need money to pay something else I can delay my mortgage payment if required because I'll still be under the schedule balance. oh and I do not use direct debits as they remove my flexibility.

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