Most credit cards give you the ability to get cash or a “cash equivalent” using your account. Known as a “cash advance”, these transactions often attract a higher interest rate than purchases. Cash advances also come with other restrictions, such as not being eligible for interest-free days or reward points, and they can attract additional cash advance fees.
A credit card cash advance is a transaction that gives you quick access to cash via a cashpoint or bank and typically comes with a high interest rate that will begin to accumulate immediately. Credit card providers have individual terms that they use to define cash advances, and these definitions will be clearly outlined in the terms and conditions of your card.
Here, we’ve outlined the range of transactions that may be classified as cash advances and attract the cash advance rates and fees.
The four most common types of cash advances
ATM withdrawals and cashback. Using your credit card to withdraw money from a cashpoint or at the checkout is a cash advance. Additional fees could also apply if you use your credit card at a non-network ATM.
Buying foreign currency or traveller’s cheques. Using your credit card to buy foreign currency or traveller’s cheques is not a good idea. Such transactions will attract your card’s cash advance interest rate. Instead, if you’re going overseas, you should look into a card specifically designed for travel.
Gift cards and prepaid cards. Most issuers consider the purchasing or loading of value onto a gift card or other prepaid card as a “cash equivalent” transaction that is subject to the cash advance fee and interest rate.
Other transactions that may be defined as a cash advance on your credit card
Transferring between accounts. When you use your credit card account to transfer funds to a current account, your card issuer may view it as a cash advance. A good way to avoid paying interest on such transactions is to use your debit card instead. If you do plan to use your credit card for electronic transfers, review the fees and charges at the onset.
Paying bills. Some credit card providers may consider making a mortgage or utility bill payment as a cash advance. Contact your provider for clarification.
Buying stocks and shares or cryptocurrency. Your card provider is likely to consider this a cash advance.
Where can I find the cash advance fees and charges for my credit card?
Most credit card issuers will charge both a cash advance fee and cash advance interest rate for applicable transactions. If you want to know what you’ll be charged, you can usually find these details under your card’s product disclosure statement or terms and conditions under “fees and charges”.
Details of the cash advance interest rate are also included in the “Key Facts Summary” that credit card issuers must provide when you’re considering their card. But if you’re unsure or can’t find this information, contact your credit card issuer to confirm what rates and fees apply before choosing a credit card or using one for a cash advance.
What you need to know about cash advances
Cash advances are not treated the same as a regular purchase, and if you are planning to use your card for a cash advance, here’s what you need to know:
Maximum withdrawal limits. It is not uncommon for credit cards to have daily, weekly and monthly cash advance limits in place. Maximum daily cash advance limits usually range from £100 to £500. Most providers only allow you to withdraw cash as a percentage of your overall credit limit, so don’t assume you have the full balance available.
High interest. Interest rates for cash advances can be up to around 40%, which is considerably high. This makes cash advances a rather expensive form of credit, and if you’re not in a hurry, getting a personal loan might be a better option.
No interest-free periods. Most credit cards give cardholders the ability to make use of an interest-free period if they pay their closing balance in full each month. These interest-free periods only apply to purchases and not to cash advances. When you use your card for a cash advance, it starts accruing interest immediately.
Cash advance fees. In addition to paying a high cash advance interest rate, you could also have to pay a cash advance fee. Typically this is a percentage, for example, 3% of the transaction, with a minimum charge of £3. With this in mind, it’s better to withdraw a bigger amount in one go, rather than make repeated trips to the cashpoint, as each withdrawal attracts a separate fee.
Minimum withdrawals. While you can use your credit card to pay for the smallest possible purchases, when it comes to withdrawing cash you may have to deal with a minimum withdrawal amount of £10 or more.
What else should I consider before getting a cash advance?
Instead of using your credit card to make a cash advance, consider opening a money transfer credit card. Admittedly, there aren’t many available on the market so they’re not easy to come by, but these types of cards allow you to transfer money from your credit card to your current account with little-to-no interest charged for an introductory period. However, you must make the minimum monthly payments on time or face running up huge charges.
If you plan on using your credit card for a cash advance, consider the following to help keep costs to a minimum:
Will you earn reward points? Typically, you won’t earn reward points for cash advances, unless the credit card comes with some kind of promotional offer.
What other options are there? If you want to use your credit card, see if there’s a way to make a purchase instead of a cash advance. For example, if you can pay with your card instead of cash, you won’t need to withdraw money from your account. You could also use your debit card, consider getting a personal loan or ask your bank if it can provide a line of credit or an overdraft facility.
Do you want purchase protection? If you pay with a credit card instead of cash, you could be entitled to protection if something goes wrong with your purchase. Under Section 75 of the Consumer Credit Act, the credit card provider along with the retailer can be jointly responsible if you don’t get what you paid for.
How much do you want to withdraw? If you do decide to make a cash advance withdrawal, remember that there is a minimum cash advance fee. For example, many cards have a 3% fee, which would be £3 on a £100 cash advance. £3 is also usually the minimum fee, so even if you withdrew £50, you would still have to pay the £3 fee.
Credit cards generally aren’t designed to be used as an ATM card, so if you think that you’ll regularly perform cash advances, you may want to consider another option to avoid accruing high fees and interest. Regardless, make sure to read the terms and conditions of your credit card before applying to ensure that you’re not confronted with any nasty surprises.
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Expect your credit card to come with minimum and maximum cash advance limits. The minimum could be around £10, and the maximum would depend on your card’s credit limit and your card issuer’s discretion.
Your credit card issuer can charge a fixed percentage of each cash advance transaction as a cash advance fee. There’s usually a minimum cash advance fee amount as well. The cash advance fee normally applies to all ATM withdrawals, transfers and cash equivalent transactions.
As a general rule, your credit card issuer has to allocate your payments to the transactions that attract the highest interest first. Since cash advances attract higher interest rates than purchases, you can expect your payments to automatically go towards your cash advance balance first.
Chris Lilly is a publisher at finder.com. He's a specialist in credit-based products including business and personal loans, mortgages and credit cards, and is passionate about helping UK consumers make informed decisions about their borrowing. In his spare time Chris likes forcing his kids to exercise more.
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