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Beware these hidden credit card cash advance fees

The Motley Fool logo The Motley Fool 8/16/2019 Harvey Jones
Roar Strand sitting on a couch © Provided by The Motley Fool, Inc

Credit cards are a great way to manage your spending, provided you use them carefully. Get it wrong, and you could run up debts and ruin your credit rating.

There is also another, less publicised, danger…

Advance charge

If you’re not careful, you can quickly start racking up additional hidden charges without realising what you’re doing. One of the costliest and most confusing is the cash advance fee. This catches many people out simply because they don’t know what it is. Others do know, but don’t realise when it applies.

So what is a cash advance fee?

Users most commonly pay the cash advance fee when withdrawing cash on their credit cards.

Despite the danger, half of us don’t even realise ATM withdrawals incur a fee, according to new research from credit experts TotallyMoney.

Instant interest

The cash advance fee is charged as a percentage of the amount spent on the card in the transaction. This percentage is typically 3%, with a minimum charge of £3. So if you withdraw a quick tenner to see you through, you could pay a charge equivalent to 30% of your withdrawal.

The cash advance fee will even apply if you have an introductory rate credit card that charges zero interest on new purchases.

The other disadvantage of taking out cash on your credit card is that you do not benefit from the typical 55 days interest free on purchases, but start paying your card’s APR the moment you get those notes in your hand.

So only use your credit card at an ATM in an emergency. Stick to your debit card whenever possible. 

It just isn’t clear

Even fewer people realise that you can incur a cash advance fee on other transactions, for example, when buying foreign currency from a bank or bureau de change.

A cash advance fee is often charged even if you take out one of those brilliant travel credit cards with no overseas usage charges. They may waive all fees on foreign purchases, but the majority still impose cash advance fees on ATM withdrawals and charge interest immediately too.

You can get caught out with other transactions, too…

It’s a gamble

If you like a flutter, the cash advance fee could eat into any winnings. If you are crazy enough to gamble online, your stake incurs a cash advance fee. So does a lottery ticket, including online versions. Bizarrely, even a fantasy football team entry fee is classified as gambling.

Most incredibly of all, buying a gift card is considered a cash-equivalent transaction.

In every case, you start paying your card’s APR immediately, too.

More downsides

Also worth knowing is that cash advances are typically exempt from reward schemes.

More importantly, cash advances may show up on your credit history file. If lenders see that you regularly withdraw cash on a credit card, they will suspect you have bad money habits and may be reluctant to give you a mortgage, loan or new card.

Do your research

Cash advance fees should be easy to avoid, either by paying with a debit card or with cash, whichever is most appropriate. 

Issuers should do more to make customers aware of extra charges, but in the meantime you have to work it out for yourself. Check your credit card statements every month; you might be shocked by what you find.

To get the right credit card for your needs, check out MyWalletHero’s choice of The Best Credit Cards For 2019.

More reading

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