How bank generate income from your credit card – A must know for Investor

Knowing is power, negligence bring disaster, if you know how bank works, crack the code,and you can get your money back from them.

Here is the list of what they do

1. Annual fee or supplementary card  fee – banks often waive this, since they can get at most RM 150 from you a year. It is a good marketing when they sell their credit card to you.

2. Interest or late payment charges – One of the key of bank’s income, the good reason why your credit limit is normally 3 to 6 times of you salary. Don’t you feel suspicious why they offer more than what you earn? It is always because, if you can’t pay this month, you can pay next month with interest. Usually it will be something like 2% of the balance or RM 10 whichever is higher.


3. Facilities charges – company who provide credit card as payment method is liable to 2% to 5% from total collection. Which mean for every RM 100 you spend, bank will get min RM 2 from it.  This does not include yearly fee chargeable to the respective company.

4. Balance cash out option – this is new, say your credit limit is RM 7500, you can withdraw 80% (RM 6000) just like ATM card. Beware, the interest is… 0.8% daily interest, equivalent to 29.2% per annum plus extra 5% interest every month. Suddenly feels like wanna be a bank owner right?

I’ll give you a hint, Bank encourage us to spend more, stand a chance to win attractive prize because of business reason – If you spend more, you probably cannot afford to pay back lump sum, thus have to bear item #2 and the more you spend, bank can get a lot from item #3

So, how do you use your credit card as investment tool, get a cash rebate from your credit card (take it as extra discount),  fully utilize EZpay, and still stand a chance to win even small cash prize?

See also: The Real Cost of Credit Cards Annual Rate – there is more than meets the eyes.


This is a contributed article by Zhafri

6 thoughts on “How bank generate income from your credit card – A must know for Investor”

  1. Here’s some Sage advice which I put into practice myself:-

    I always pay my credit card bill in FULL, 1 or 2 days before the due date. That way I don’t get charged on interest on the amount owing. I only use my card to pay for essentials – bills, groceries, etc. I then rollover my credit for 45 days until it’s time to pay up again. That way I get free money to use for 45 days. Never allow the bank to make a single sen from you. Always pay up in full. That way you can sleep soundly at night and never have to worry that your credit card bills will become debt that keeps increasing until you no longer are able to service them and be declared bankrupt. All it takes is some discipline. I have been doing this for almost a decade now. So far no Bank has earned a single sen from me on interest charges. 🙂

    1. We are on the same page Steve 🙂
      Credit card = payment method for convenience, not for extending spending limit
      Unfortunately youths nowadays are more inclined to pay minimum amount. That’s why I feel compelled to get the message across.
      Moreover, the quoted rate is only the APR. When takes into account compounding effect, the interest is actually higher – I wrote about it here previously –

  2. Well said Daniel, that’s credit cards are literally pushed to our face nowadays, everywhere we go in shopping malls…run like a plague! 😀

    1. Daniel | Silver in Malaysia

      Haha! That’s also the reason why some of the tallest buildings in the cities own by the banks!

  3. Daniel Foo | Silver in Malaysia

    The big money that the banks made from is through Fractional Reserve system 🙂

    The more someone deposit the bank, the more the bank can loan out (property loan / hire purchase car loan / etc), then the more interest the bank can charge, the more money people pay into the bank and the cycle continues.

    People like us using credit card are helping the expansion of currency which ultimately lead to higher inflation. When we swipe out credit card, the bank do not need to have that amount of money in their account. All they need to do is book entry. Money is created on the spot the moment we swipe our credit card.

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