Credit Card Interest Rates

If you read the fine print on your credit card contract, you’ll notice 3 different credit card interest rates quoted.  It’s important for you to understand the difference between these interest rates and what you will be charged for each. Here’s a summary...

Purchase Rate

The most prominent credit card interest rate you’ll see is the purchase rate. This is the interest charged on purchases made on your card.  Most credit card companies use an average daily balance method, where interest accrues daily.

Cash Advance Rate

If you take out money at an ATM on your credit card – this is a cash advance. That might seem obvious. What’s less obvious is that when you use the convenient cheques that your credit card company sends you in the mail, this too is a cash advance. Interest starts to accumulate immediately on cash advances.

Balance Transfer Rate

If you take your outstanding debt on one credit card and transfer it to another card, this is a balance transfer. The main reason why you’d do this is if the new card offers a better balance transfer rate compare to the interest rate you’re paying on your current credit card.

What Affects Canadian Credit Card Interest Rates?

The Canadian Bankers Association says there is no direct relation between the Bank of Canada’s key interest rate, which influences the commercial banks’ prime rates, and consumer rates on credit cards.

In fact, the Bank of Canada rate represents less than 1% of banks’ overall funding costs, it says.

“Many factors go into setting credit-card interest rates, including:

  • the provision of an interest-free grace period
  • the risks of providing unsecured credit
  • transaction processing costs
  • technology support
  • statement costs
  • rewards programs
  • fraud losses
  • and customer defaults

"Credit card interest rates tend to be higher than other loans because there is no collateral involved so there is a higher risk for the issuer,” the association says.


The RATESDOTCA editorial team are experienced writers focused on sharing stories and bringing you the latest news in insurance and personal finance. Our goal is to provide Canadians with the information and resources they need to make better insurance and financial decisions.

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