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What credit card transactions are considered cash advances?
From getting cash out of an ATM 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. Cash advances also come with other restrictions, such as not being eligible for interest-free days or rewards points. Along with the higher interest rate and restrictions, these transactions can also attract additional cash advance fees.
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What is a cash advance on a credit card?
A credit card cash advance is a transaction that gives you quick access to cash via an ATM or bank and typically comes with a high interest rate that will begin to accumulate immediately. Credit card providers have individual terms of the transactions that they define as “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 rate and fees.
The 6 most common cash advance transactions
- 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, know that it will be considered as a cash advance. This comes with the usual cash advance fees and a high APR.
- Gambling transactions. Purchasing lottery tickets, placing bets and paying for gambling at a casino or online are considered cash advances (or are outright illegal in states). Don’t be surprised if you also have to pay the cash advance rate even on money you spend eating and drinking while at a casino.
- Gift cards and prepaid cards. Most issuers consider the purchasing or loading 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.
- Credit card checks. Certain credit card issuers send checks 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 traveler’s checks. Using your credit card to buy foreign currency or traveler’s checks is not a good idea, because such transactions attract your card’s cash advance rate. Instead, if you’re going overseas, you should look into a card specifically designed for travel.
Other transactions that may be defined as cash advances on your credit card
- Balance transfers. A number of American credit cards come with balance transfer offers, giving cardholders the ability to save money in the form of interest. In many such instances, outstanding balances from balance transfers start attracting 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.
- Transferring between accounts. When you use your credit card account to transfer funds to another account, your card issuer will view it as a cash advance. Instances of this include repaying a loan taken from a friend, transferring money into your everyday banking account, and in some cases, even transferring funds using phone banking. 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.
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 in the card’s terms and conditions under “Interest fees and interest charges”.
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 cash advances.
Credit card cash advance tip
If you often use your credit card for cash advance transactions, you may want to look at credit cards that charge the same interest rate for purchases and cash advances. While you’ll still have to pay the cash advance fee, these types of cards make it easier to keep track of the interest charges and sometimes offer lower rates than other credit cards.
What to know about a cash advance
Cash advances are not treated the same as a purchase, and if you’re planning to use your card for a cash advance, here’s what you need to know:
- 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 $20 or more.
- Maximum limits. It is not uncommon for credit cards to have daily, weekly, and monthly cash advance limits in place. Maximum daily cash advance limits of less than $500 are rather common.
- Cash advances paid first. Regulatory changes in how credit card providers apply payments ensure that your credit card provider applies your payments towards balances that attract the highest interest. You can be certain that your repayments will go towards reducing your cash advance balance first.
- High interest. Interest for cash advances is normally 25% APR or more, 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 balances in full each month. These interest-free periods apply only on purchases, and not on cash advances. When you use your card for a cash advance, it starts attracting interest immediately.
- Cash advance fees. In addition to paying a high cash advance rate, you could also have to pay a cash advance fee. Typically this is a flat rate or percentage, for example, $10 or 5% of the transaction, whichever is greater.
What else should I consider before getting a cash advance?
If you plan on using your credit card for cash advances, consider the following questions to help keep costs to a minimum:
- Will you earn reward points? Typically, you won’t earn reward points for cash advances, unless a credit card comes with some kind of a promotional offer.
- What are the conditions when traveling overseas? If you’re considering using your credit card for cash advances when traveling overseas, take into account that you could have to pay extra in the form of ATM fees and international transaction fees. There are some cards that offer lower foreign transaction and currency conversion fees.
- 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.
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. 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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