0% interest credit cards vs low interest credit cards: Which can save you the most?

long-haired woman sitting on her couch at her laptop holds her low rate credit card, thinking about zero interest credit card

Across all personal credit cards on the Mozo database, the average interest rate is 17.06% p.a., which can add up if you’re carrying over a balance. Recently, there has been an influx of an alternative type of card - 0% interest credit cards.

The sudden uptick in zero interest cards entering the market is largely linked to the popularity of Buy Now Pay Later (BNPL) platforms, such as Afterpay - particularly with younger demographics. These services allow users to purchase a product or service at a shop or online and pay it back in interest free instalments.

According to Afterpay’s research, in Australia, BNPL usage has surged by 174% with Gen Z and 110% with Millennials since Jan 2020. In contrast, credit card spending has remained static among these groups in the same period, only growing between 1-2%.

So, it’s no wonder several big banks have jumped on the bandwagon, releasing 0% interest credit cards that basically operate as BNPL options.

NAB led the charge with its StraightUp card, while Commbank launched Neo, and Westpac announced the Flex Card. Community First Credit Union also joined the fray, releasing its n0w Credit Card, and, in October, ANZ announced that it would be partnering with Visa to bring a BNPL credit card to its customers.

Do 0% interest cards save you money compared to low rate credit cards?

Although younger Aussies are turning away from traditional credit cards and towards interest-free options with easy-to-understand fees, that may not be a prudent choice.

These 0% interest cards all operate similarly to a BNPL service, with a credit limit between $1000 and $3000 and a scaled monthly fee from $9 to $22, which can sometimes be waived if conditions are met. Like most credit cards, zero interest cards also have minimum required repayments between $20 up to $110, which, if not paid, can lead to the suspension of the card.

Although no interest is charged, keep in mind that a zero interest card does not always make financial sense.

While it might be appealing to have predictable payments and avoid costly interest on your balance, you could end up paying more in fees on your zero interest card than you would on a normal low rate credit card.

While many traditional credit cards charge 20% interest or more on purchases, low interest rate credit cards offer a more basic service at a much lower rate, usually without rewards points or extra benefits that come with higher-rate cards. 

Which credit card saves you more money on a small balance?

While off the bat, a credit card that charges no interest sounds like it would save you money, it really depends on the way you approach your finances.

CardsCBA NeoCBA EssentialsCBA Essentials
Repayment Strcuture$25 (minimum)$25 (minimum)$25 (minimum) + interest
Interest Rate0% p.a.9.9% p.a.9.9% p.a.
Fees$12 monthly$60 annual fee ($5  per month)$60 annual fee ($5 per month)
Time to pay off balance28 months32 months28 months
Total interest over time$0$99.23$83.74
Total fees over time$336$160$140
Total paid in interest and fees over time$336$259.23$203.74
  • Taking the CommBank Neo card as an example, if you have a $700 debt on a 0% p.a. interest credit card paying a $25 minimum repayment and a $12 monthly fee, you will pay $336 in fees over 28 months.
  • By comparison, paying just the same $25 minimum payment on the CBA Essentials card, which offers a low interest rate of 9.9% p.a., you would have to pay only $99.23 in interest and a $60 annual fee over 32 months, totalling $259.23.
  • Additionally, on the CBA Essentials card, if you pay the $25 minimum payment plus the minimal monthly additional interest, you would have to pay only $83.74 in interest and a $60 annual fee over a 28-month period, totalling $203.74.

If you tend to carry a relatively small balance from month to month, while only a $77 difference, a traditional low rate card is a cheaper option when making minimum payments.

If you utilise a low rate card, make your minimum payment, and pay off the minimal monthly interest, you can see a saving of over $130 between the zero interest and the low rate option - with the balance paid off in the same amount of time too!

Which credit card saves you more money on a large balance?

If you use your credit card regularly and often carry a higher balance, a 0% interest card could be a better fit, depending on how you plan to structure your repayments.

CardsCBA NeoCBA EssentialsCBA Essentials
Repayment structure

2% or $25, whichever is greater (minimum)2% or $25, whichever is greater (minimum)2% or $25, whichever is greater (minimum) + interest
Interest Rate0% p.a.9.9% p.a.9.9% p.a.
Fees$18 per month$60 annual fee ($5  per month)$60 annual fee ($5  per month)
Time to pay off balance74 months105 months74 months
Total interest over time$0$895$572.34
Total fees over time$1,332$525$370
Total paid in interest and fees over time$1,332$1,420$942.34
  • Again, taking the CommBank Neo card as an example, if you have a $2000 debt on a 0% p.a. interest credit card paying a 2% or $25 minimum repayment and an $18 monthly fee, you will pay $1,332 in fees over 74 months.
  • By comparison, paying the 2% or $25 minimum payment on the CBA Essentials card only, which offers a low interest rate of 9.9% p.a., you would have to pay $895 in interest and a $60 annual fee over 105 months, totalling $1,420
  • Additionally, on the CBA Essentials card, paying the minimum payment plus the minimal monthly additional interest, you would have to pay only $572.34 in interest and a $60 annual fee over a 74-month period, totalling $942.34.

So if you tend to hold a consistently higher balance on your credit card and pay it down with the minimum monthly repayments, the zero interest card is $112 cheaper than the low interest card.

But this is not true if you utilise a low rate card, make your minimum payment, and pay off the small monthly interest. Although your monthly repayments would be slightly higher than just the minimum amount alone, you could see a large savings in the long term. There is a $389.66 difference between the low rate card and the zero interest card -  again, with the balance paid off in the same amount of time!

So, to determine whether a low rate credit card or a 0% interest rate card makes financial sense for you, you first need to assess your credit spending habits and repayment structure. If you use your credit card once in a while and only carry a small debt, then maybe consider a low rate credit card over a zero interest.

But, if you’re someone who frequently runs up a balance over $1000, then you need to consider how much you would like to repay each month, as you could see some savings with a zero interest credit card over a traditional card.

If you’re interested in saving money on your credit card bill, look at some of the best credit cards in Australia available this month. If you’re looking for a low rate card, see some of the top low interest credit cards below.

Top low rate credit cards - last updated 25 January 2022

Search promoted credit cards below or do a full Mozo database search. Advertiser disclosure
  • Apply By 28 Feb 2022
    Bendigo Bank Low Rate Credit Card

    0% p.a. on purchases for up to 18 months (Reverts to 11.99% p.a). Low annual fee of $45 and no fees for additional cardholders.

    Purchase rate
    Balance transfer rate
    Annual fee
    0% p.a. for 18 months then 11.99% p.a.
    No current offer
    $45
    Details
  • Virgin Money Low Rate Card

    Receive a low 11.99% p.a purchase rate. 0% p.a on balance transfers for the first 15 months (1% BT fee applies). Get tap and pay feature, plus 55 days interest free. Loyal card holders could see annual fee waived in 2nd year (conditions apply).

    Purchase rate
    Balance transfer rate
    Annual fee
    11.99% p.a.
    0% p.a. for 15 months and then 21.69% p.a. (1.00% balance transfer fee)
    $99
    Details
  • Bankwest Breeze Mastercard

    Enjoy 0% p.a on balance transfers for 15 months then 9.90% thereafter. No annual fee for the first year. Limited time only. Other fees, T&Cs apply. New Breeze Mastercard customers only.

    Purchase rate
    Balance transfer rate
    Annual fee
    0% p.a. for 15 months then 9.90% p.a.
    0% p.a. for 15 months and then 9.90% p.a.
    $49 $0 in the first year
    Details
  • Westpac Low Rate

    Enjoy a super low rate of 13.74% with 55 days interest free plus 0% balance transfer for up to 28 months at 1% BT fee. No annual card fee for the first year, $59 thereafter. New Cards only. Offer ends February 24th 2022. T&C's and exclusions apply.

    Purchase rate
    Balance transfer rate
    Annual fee
    13.74% p.a.
    0% p.a. for 28 months and then 21.49% p.a. (1.00% balance transfer fee)
    $59 $0 in the first year
    Details

^See information about the Mozo Experts Choice Credit Card Awards

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