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What credit card transactions are considered cash advances?
From getting cash out to buying foreign currency or gift cards, discover all the transactions that are considered cash advances.
Most credit cards give you the ability to get cash or a “cash equivalent” using your account. Known as “cash advances”, these transactions often attract a higher interest rate than purchases.
Generally speaking, you want to avoid cash advances whenever possible. Aside from a higher interest rate, they often require a sizable fee to perform and come with other restrictions, such as not being eligible for interest-free days or rewards points.
What is a cash advance?
A cash advance is a type of transaction that allows you to access funds in the form of cash or a “cash equivalent”. For example, using your credit card to withdraw money from an ATM, pay for gift cards or buy foreign currency are all commonly defined as cash advance transactions.
Cash advances typically have higher interest rates than standard credit card purchases, with most ranging from 19.95% p.a. to 22.95% p.a. They also attract a fee worth 2-3% of the transaction and are not eligible for features like interest-free days or reward points. Some credit cards charge the same interest rate for purchases and cash advances, although the cash advance fee still applies.
What transactions are classed as a cash advance?
Credit card providers have individual terms for the transactions they define as “cash advances,” and these cash advance definitions are clearly outlined in your card’s “Terms and Conditions”.
Here, we’ve outlined the range of transactions that may be classified as cash advances and attract the cash advance rate and fees.
- ATM withdrawals and cash out. Using your credit card to withdraw money from an ATM or at the checkout is a cash advance. Additional fees could also apply if you use your credit card at a non-network ATM.
- Overdraft protection. If you fund your overdraft with a credit card, it is considered a cash advance, which comes with the usual cash advance fees and a high APR.
- Gambling transactions. Purchasing lottery tickets and scratchies, placing bets and paying for gambling at a casino or online are considered cash advances. Don’t be surprised if you also have to pay the cash advance rate on the money you spend eating and drinking while at a casino.
- Gift cards and prepaid cards. Depending on your bank and the type of gift card, some issuers might consider purchasing or loading value onto a gift card or other prepaid card as a “cash equivalent” transaction subject to the cash advance fee and interest rate.
- Credit card cheques. Certain credit card issuers send cheques to cardholders that they can use to withdraw money from their accounts as and when they like. While using such cheques can be tempting, you may want to reconsider to avoid the cash advance rate.
- Buying foreign currency or travellers cheques. Using your credit card to buy foreign currency or travellers cheques is not a sensible idea because such transactions attract your card’s cash advance rate. Instead, you may want to look into a card specifically designed for travel if you’re going overseas.
Other transactions that may be defined as cash advances on your credit card
- Balance transfers. Some New Zealand credit cards come with balance transfer offers, allowing cardholders to save money in the form of interest. In many instances, any outstanding balance from a balance transfer starts to attract the card’s cash advance rate at the end of the promotional period. As a result, if you don’t repay the balance completely before the introductory period ends, you could end up paying more than you initially expected.
- Transfers between accounts. When you use your credit card account to transfer funds to another account, your card issuer views it as a cash advance. Examples of this include repaying a loan taken from a friend, transferring money into your everyday banking account, and in some cases, transferring funds using phone banking. A good way to avoid paying interest on such transactions is to use your debit card. If you plan to use your credit card for electronic transfers, review the fees and charges at the onset.
What are the fees and charges?
Using your credit card for a cash advance should be a last resort and if you do end up taking this path, remember the following.
- Cash advance fee. Cash advance fees are usually charged as a percentage of the total cash advance amount. For example, if you withdrew $1,000 on a credit card with a cash advance fee of 3%, you would pay a fee of $30. This fee is added to the balance on your card and increases your interest charges.
- Interest charges. Interest applies from the day you make the cash advance transaction. For example, if your credit card has a cash advance rate of 21.99% p.a. and you make a cash advance transaction worth $1,030 (with a 3% cash advance fee), you are charged $18.64 for the first month you carried this debt. If you only pay the minimum each month, it would take you around 9 years to pay it off, costing you a total of $1,274 in interest.
- ATM fees. Some providers and third-party companies charge an additional fee when you withdraw money from an ATM outside your provider’s network. These charges add to the overall cost of your cash advance. You may be able to avoid these fees by using an ATM that is part of your provider’s network.
- Cash advances overseas. If you use a credit card for a cash advance overseas, you could attract further charges, including ATM fees and currency conversion fees. These are added to the total cost of the cash advance, leading to even higher interest charges.
What else should I consider before getting a cash advance?
Cash advances aren’t the same as purchases. As well as the fees and interest costs, here are some other key details to bear in mind:
- Cash advance limits. Most credit cards have daily, weekly or monthly cash advance limits in place. For example, you may only be able to withdraw up to $500 a day. Or, you may only be able to access a percentage of your available credit limit for cash advances.
- Repayments. Your credit card provider has to apply your repayments toward the part of your balance that attracts the highest interest first. Since cash advances tend to have higher interest rates than purchases, your repayments usually go towards reducing your cash advance balance first.
- No interest-free days. Most credit cards give cardholders the ability to use interest-free days if they pay their closing balance in full each month. These interest-free days only apply to purchases. When you use your card for a cash advance, it starts attracting interest immediately.
- Rewards. Cash advance transactions are not considered “eligible” for earning rewards points or meeting a bonus point spend requirement.
- Introductory 0% p.a. interest rate offers. Most 0% interest offers apply to standard purchases or balance transfers, so cash advance transactions are generally not eligible for the promotional rate of interest.
What are the alternatives?
If you want to avoid the extra fees and high-interest rates that come with using your credit card for a cash advance, you can consider the following alternatives:
- Debit cards. Using your debit card to withdraw money from your bank account won’t attract cash advance fees. In fact, it is likely to be fee-free if you stick to your own bank’s ATM network.
- Direct bank transfers. If you need to make a payment straight away, you could consider a direct transfer from your bank account. This allows you to pay anyone using your own money instead of funds from your credit card, which means you aren’t charged interest or a cash advance fee.
- Loans. If you need extra funds, you may also want to consider a short-term loan or personal loan to cover the costs. These options may have lower interest rates than credit card cash advances. Plus, some short-term loan issuers can give you access to approved funds on the same day or by the next business day.
Credit cards generally aren’t designed to be used as ATM cards. So if you think that you’ll regularly perform cash advances, you may want to consider another option to avoid accruing high fees. Regardless, make sure to read the terms and conditions before applying to ensure that you’re not confronted with any nasty surprises when you get your hands on the card.
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