Credit cards and cash withdrawals
Cash is credit card kryptonite: the one thing all cardholders know (we hope) they should stay well away from.
This guide will look in more detail about why, exactly, that is and then examine the credit cards that claim to be an exception to the rule.
Is it ever worth abandoning debit cards to use them?
Credit cards and cash: what's the problem?
There are two problems: first, interest rates and fees for these transactions are high and second, a 'cash advance' doesn't just mean withdrawing money at an ATM.
Interest and fees
When a cash advance transaction is made using a credit card, the majority of providers will charge a handling fee, usually around 3% of the balance withdrawn, and start charging interest, usually at a 20% to 30% p.a. variable rate.
The rate at which interest is charged is almost always higher than the purchases rate and there's rarely a standard interest free period like the one offered on purchases.
Let's look at what that will mean in the real world.
Say a provider charges a 27.9% p.a. rate on cash advances as well as a 3% fee. Here's how much the cardholder would pay to take £1,000 out at an ATM (including the £30 handling fee).
|10 days||20 days||30 days||50 days|
This is an extreme example; few people would take out £1,000 all at once.
For a £100 withdrawal from an ATM with 20 days to go until the amount was paid back in full the same cardholder would pay the minimum fee - £3 - plus approximately £1.50 in interest.
However, although that doesn't sound like a lot, it could really start to add up over multiple transactions.
'Cash advance' classification
It's well worth delving into credit card terms and conditions to get the full scoop on what the term 'cash advance' really means.
Typically, it will include the following:
- Withdrawals from an ATM
- Over the counter withdrawals from the bank
- Cash back at the till
- Foreign currency purchases (e.g. from Travelex)
- Gambling transactions (including buying a lottery ticket or food and drink at a casino)
- Credit card cheques
- Buying shopping vouchers or gift cards
- Money transfers (e.g. moving money to a current account or making a mortgage payment)
- Paying utility bills
Credit card providers classify transactions with a code which is why even buying food and drink in a casino counts as a cash advance: there's no way for them to tell the difference.
However, also for this reason, it is possible that a clerical error could occur and a transaction could be incorrectly classified as a cash advance.
If a cardholder suspects this has happened, they're entitled to dispute the transaction and ask the credit card provider to investigate the issue with the retailer. See more on how this works in our chargeback guide.
On a side note, the name 'cash advance' is, we think, itself quite revealing. It's best known nowadays as a term used for short term and high interest, or payday, loans, which also happen to charge high interest rates and fees.
Indeed, as we note elsewhere lenders increasingly view cardholders who use cash advances negatively.
Credit cards for cash withdrawals
However, not all credit cards charge so much for cash advances.
A new breed of specialist credit card is emerging, offering the same, or some of the same, benefits for cash transactions as they do for purchases.
Given that encouraging cash advances is generally seen as irresponsible, however, it is a small group, and is likely to remain so.
No fees/interest free periods on cash advances
A few credit cards give cardholders a break on cash advances.
As we update this article, for example, one credit card - the Saga Platinum credit card (cost of credit) - gives an interest free period on cash advances.
That essentially elevates cash to the level of purchases: cardholders can pay off in full at the end of the month and avoid interest.
Another deal - the Halifax Clarity credit card (cost of credit) - doesn't charge a fee on cash withdrawals and charges interest at the same rate as purchases, reducing the cost somewhat.
Note that this information is correct as of the byline date above, click through to the providers to find more information.
0% money transfer deals
Like a 0% balance transfer deal, these interest free promotions
However, this way of borrowing in the form of cash can get very expensive if the full amount isn't paid back within the promotional interest free period (note also you still have to make the minimum monthly payment).
There's also a fee to pay - usually around 4% of the transferred balance.
For that reason, this method of cash withdrawal is most often used by those who want to repay an expensive overdraft or personal loan: in that case the money saved in interest will, if the deal is used correctly, outweigh the outlay of the fee.
When it's possible to make a purchase rather than taking out cash nine times out of ten a credit card offering a promotional deal on new spending would do the job better with less hassle.
iZettle, Mpowa etc
Finally, it's not possible for credit card holders to make a purchase directly to their own accounts.
iZettle, which we reviewed in full here, consists of a free bit of hardware that can read the credit card and an app for iPhone or iPad to actually go through taking the transaction.
There is a fee to pay for the transaction - usually just under 3% of the transaction - but in terms of ease it may beat some of the options above.
Please read our full disclaimer for important information that relates to the service we provide and your use of this site.
We aim to provide free reviews and comparisons of consumer products and to keep our editorial content as objective as possible. To keep the site free, we are paid by some providers when new customers take products after they've clicked on our links. We don't allow our editorial content to be affected by those links, however we may not include all of the products available in the market. Finally, we do not submit or process any applications for any products or services and we cannot guarantee that any product or service listed on this website will be available to you. Credit providers make the final decision on whether an application for credit will be accepted.
If you would like to get in touch with us you can contact us here.