Low & No Fees Credit Cards: Too Good To Be True?

Co-author: TJ Ryan
We reveal the hidden traps of no annual fee cards such as student credit cards or low income credit cards. Compare credit cards to find the best value.

It might surprise some Kiwis to know that there are very few credit card products specifically designed for students and other low income earners. The cards that are tailored to these groups can come with a credit card interest trap, if consumers are not disciplined about paying off their card in full each month. They might have a low or $0 annual fee, which sounds great, but their interest rates can be on the high side.

Basically, for students looking to take out a credit card, it would be wisest to look outside the “Student” and “No Annual Fee” cards if there’s any chance that you’ll pay interest on a balance. If you’re a student looking for a credit card, we’ve researched and rated the credit card offers available for tertiary students.

Of course, if you’re confident that you will pay your card in full each month, a no-fee option could work well for you – it’s about knowing your spending habits and choosing a credit card accordingly.

Low Income Earner Credit Cards

Low income earner credit cards are cards that have no specific income requirement, meaning you don’t have to be earning above $20,000 per year to apply for this card. Most of these cards are available with lower credit limits of $1,000 or less.

Interest rate

The average interest rate for low-income earner cards is 19.00%. In comparison, at time of writing the Low Rate credit cards on our database have an average interest rate of 16.00% , and across all credit cards on Canstar’s database the average interest rate is 17.75%.

Applicants should note that out of the 26 low income earner cards on our database, 17 have an interest rate of above 19.00%. The maximum interest rate for low income earner cards is  25.99%, the same as Standard category credit cards. So don’t forget to investigate the interest rates before you sign up for a new credit card.

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Interest-free days

Low income earner cards on average offer a 52 day interest-free period. Most low income earner cards’ interest free periods range from 44 days to 55 days.

Annual fee

The good news is that the annual fees on low income earner cards are lower than other credit cards.

Low income earner cards have an average annual fee of $86.11, compared to $35.55 for Low Rate and $115.00 across all credit cards on Canstar’s database.

The minimum annual fee for low income earner cards is $0, and 3 cards out of 26 offer this low fee. There are also Low Rate and Standard cards with a $0 annual fee.

In the comparison table below, you can view low interest rate credit cards, with $0 annual fee and over 45 days interest free. Please note that this table has been formulated based on an estimated spend of $1,000 per month, and are sorted by purchase rate (lowest first).

Company Product Purchase Rate (p.a.) Annual fee Interest free days
ASB Visa Light 13.5% $0 55
Kiwi Bank Mastercard Zero 16.9% $0 55
American Express Airpoints Card 0% for 6 months then 16.9% $0 55
Warehouse Money Purple Visa Card 19.95% $0 55
Warehouse Money Visa Card 19.95% $0 55

Source: www.canstar.co.nz. Rates and fees as at 27 November 2018.

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Credit limit

The minimum credit limit offered on low income earner cards is $500, which is a safe choice for those who cannot afford to accidentally overspend.

Student Credit Cards

At the time of writing, there are 4 products on our database that are explicitly marketed and targeted towards students:

  • ANZ Bank NZ – full time students can apply for an ANZ credit card with no annual fee for the first year
  • ASB Bank NZ students can apply for an ASB credit card with a credit limit of $1000 and no annual fees
  • Kiwibank NZ students can apply for a Low Rate Mastercard with a credit limit of up to $500 and no annual fee for the first year
  • Westpac NZ students over 18 can apply for a Westpac Airpoints, Low Rate or hotpoints credit card with a credit limit of up to $1,000 and no annual fee for the first year

While these cards may have low credit limits and low annual fees, interest rates will still apply. If you are a student with one of these cards, you had better watch your spending like a hawk. Any time you buy something, pay it off before your interest-free days end!

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So what do you need to do when choosing a card?

Think hard about whether you need a credit card. They can be a terrific spending and budgeting tool if they’re used properly. If you’re not confident that you’ll be able to use it properly, it could end up being an expensive trap. Debit cards work just as well for things like direct debits, paying bills, and online shopping.

If you only plan on using your credit card for the occasional purchase, compare your options first before choosing a $0 annual fee card that may charge you excessive interest. Your other option is to look for a great value savings account instead, so that you can work towards the savings goals and buy those occasional purchases. You can also create a separate emergency savings account for the big purchases that come up unexpectedly.

Learn how to stay out of credit card debt

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