Deep Dive

How banks make money

Emma Nunes-Vaz
January 16, 2024

The amount of money that a credit card provider makes from a credit card will vary depending on the borrower's creditworthiness, the type of credit card, and how much the borrower uses the card. However, interest on a borrower carrying a balance from month to month is typically the biggest source of income for them. Let’s dive into a few of the most common fees below:


As mentioned above, credit card providers charge interest on the outstanding balance of a credit card. To put it simply, this is the amount of money that the borrower owes them after making their minimum monthly payment each month. The interest rate on a credit card can be anywhere from 10% to over 30% APR (Annual Percentage Rate) and can be found in the credit card agreement you sign when taking out the card.

Annual fees

Some credit card providers charge an annual fee which is a flat fee that the borrower must pay each year, regardless of how much they use the card. This fee is typically a charge to cover the cost of providing a card's extra benefits, such as miles, points, or cash back if it has them.

Late fees

These are pretty self-explanatory, if a borrower misses a credit card payment, they may be charged a late fee. This fee is typically between £10 and £30 but it’s important to refer to the credit agreement you sign when taking out the card to find out the exact amount as the amount can vary.

Over-the-limit fees

All credit cards have a certain amount of credit available that is detailed in your agreement. If the balance of your credit card goes above the agreed limit, then you have broken the agreement and are liable to be charged. Similar to a late fee, this fee is typically between £10 and £30. To avoid this situation, you can actually opt-out of being able to exceed your credit limit, meaning you avoid any unwanted cost.

Foreign transaction fees

These types of fees are implemented if a borrower uses their credit card to make a purchase in a foreign currency or overseas. This fee is typically between 2% and 3% of the transaction amount, almost like a tax for paying in a different currency and is charged automatically per transaction. You can find out the foreign transaction fee in your credit card agreement. 

Cash withdrawals

Some credit card providers charge a fee for withdrawing money from an ATM. It is only charged when customers attempt to take money out of their account, the fees are dependent on the type of withdrawal as well as the bank, different credit card providers charge different amounts.

Balance transfer

A balance transfer is when a borrower transfers a balance of existing debt from one credit card to another. They may do this to escape interest fees but they have to pay a small penalty for this. The penalty fee that is charged for this, by the credit card provider is determined by a percentage of the amount transferred by the borrower.