Cash withdrawal using a credit card comes with charges. Details
Cash is still needed for many purposes, though digital payment methods have rapidly grown in recent years.
When we are out of cash towards the end of the month or need it in case of an emergency, the most likely response is to use now pay later services or to use the credit card at an ATM to withdraw cash. This may be the most convenient way to address a cash crunch instantly, but it's not a wise decision.
Credit cards can be used to withdraw cash the same way we swipe a debit card at the ATMs. However, in the case of a credit card, certain charges are involved for getting the cash advance. The interest rates on cash withdrawal using credit cards are high, and it's not a financially prudent option.
Here are the charges or fees you must pay when you swipe your credit card to withdraw cash.
Cash Advance Fee
When you withdraw cash from an ATM with your credit card, a fee is charged for every such withdrawal. This fee usually varies from 2.5% to 3% of the amount withdrawn and added to your next credit card bill.
Interest
Interest is also levied on the amount you withdraw using the credit card. The interest rate on such cash withdrawals is usually high and could be up to 3.5% per month. In addition, credit card issuers don't offer any interest-free period for cash withdrawals as they do for regular transactions through credit cards. This means the interest charges are applied when you make a cash advance from your credit card.
Credit Score
Withdrawing cash using a credit card doesn't affect your credit score directly. However, due to its high charges, you may fail to pay the minimum due, and your credit card usage amount will also go up. This will affect your credit score negatively.
ATM Maintenance Fee
Most banks allow up to 5 free ATM transactions using credit or debit cards. Once you reach this limit, an interchange or ATM maintenance fee is charged.
Benefits And Deals
When you swipe your credit card to pay at restaurants and shops, banks may offer you special discounts or deals. But, when you use your credit card to withdraw cash, you may be unable to avail of these benefits.
It is advised to withdraw cash from credit cards only when it is urgent and unavoidable.
You can use a credit card to withdraw cash from an ATM, but it is an expensive way to access your money. A range of fees and interest charges mean you’ll end up paying a lot to get your hands on some cash.
In this guide we look at what to consider before you withdraw money from a credit card, the fees associated with taking cash out with a credit card and whether it can affect your credit score.
Withdrawing cash with a credit card
Credit cards and debit cards are very similar. You can use both to pay for your shopping online and in stores.
You can also withdraw money from a credit card in the same way you would a debit card.
Using a cash machine
If your credit card provider is a bank or building society, you can withdraw money from with a credit card in branch
Via cashback when you pay with your credit card in a store
But, credit card companies charge large fees and interest when you take money out – known as a cash advance – making it a more expensive way to get cash than withdrawing from your debit card.
What does it cost to withdraw money with a credit card?
When you withdraw money from a credit card, also known as a cash advance, you can pay two separate fees:
Cash advance fee
This is the fee you’ll pay every time you withdraw money from your credit card. It is usually a percentage fee on the amount you withdraw. For example, if your cash advance fee is 3% and you use your credit card to make a cash withdrawal of £500 you will be charged £15.
Sometimes a cash advance fee is a fixed amount, say £3 every time you withdraw cash from a credit card. So, if you withdraw £50 on your credit card you’ll be charged a £3 cash advance fee, and if you withdraw £500, you’ll still pay a £3 fee.
This fee is charged every single time you use your credit card to withdraw cash. So, if your card has a £3 cash advance fee and you make 15 cash withdrawals in a month, you’ll find your bill has a £45 fee added to it.
With a cash advance fee,you should try to avoid withdrawing lots of little amounts on your credit card, as you’ll have to pay a fee each time you make a withdrawal.
Daily interest
If you withdraw money from a credit card, you’ll pay interest from the moment the money is in your hands. This is quite different to when you use your credit card to buy something. When you buy something with a credit card, you aren’t usually charged interest until the payment due date on your bill. That means if you pay your bill in full each month, you won’t attract interest on your purchases.
Cash withdrawals are different. Credit card providers charge interest from the moment you withdraw the money. Let's imagine you have a credit card which charges 27.9%APR and a 3% cash advance fee. You withdraw £500 from your credit card and don’t pay off the balance on your card for 28 days. You would owe around £11 in interest from the APR, on top of the £15 cash advance fee from making the withdrawal.
The interest rate charged for cash advances is usually higher than the purchase rate too. For example, an HSBC credit card has a 22.9%APR rate on purchases, but the cash withdrawal interest rate is 27.9%APR.
If you have a credit card with an interest-free offer on purchases, this will not include cash withdrawals. For example, a credit card might offer 20 months 0% on purchases, but the interest rate on cash withdrawals could be 23.9%APR.
What counts as withdrawing money with a credit card?
Taking money out at a cash machine isn’t the only thing that counts as withdrawing cash from a credit card. Lenders include several other transactions as a cash advance, meaning you’ll pay extra fees and interest on them.
Credit card transactions that class as cash advances include:
Betting or gambling including buying lottery tickets
Buying gift vouchers
Buying foreign currency or travellers’ cheques
Making a mortgage repayment
Paying a utility bill
How much cash can you withdraw with a credit card?
There are several factors that determine how much money you can withdraw from your credit card.
Your credit limit: You can’t withdraw more cash than the limit on your credit card.
Your available credit: This is the amount left on your credit limit after you deduct your current balance. For example, if you have a £1,000 limit and you’ve spent £600, you’ve got £400 of available credit.
Your cash advance limit: You can only usually withdraw a set percentage of your credit limit as cash. For example, your cash advance limit may be 90% meaning on a £1,000 credit card limit you can only withdraw £900 as cash.
ATM withdrawal limits: The cash machine you use may limit how much can be withdrawn in one transaction.
How to withdraw cash from a credit card without fees
There isn’t any way to avoid the fees completely when you withdraw cash with your credit card, but you can reduce them.
A very small number of credit cards don’t charge a cash withdrawal fee. For example, the Halifax Clarity Card and Barclaycard’s Rewards card. But both these credit cards will still charge you interest from the moment the money leaves the cash machine so it can still prove expensive.
Another option if you need to withdraw cash from your credit card is to use a specialist card known as a money transfer card. These credit cards allow you to transfer money from your credit card into your current account. Then you can withdraw the money out of your current account using your debit card.
These cards often have a lengthy interest-free period on money transfers. There is usually a money transfer fee of 2-4%. This is charged on the money you transfer from the card into your current account. So, if you had a credit card with a 4% money transfer fee and you moved £1,000 from the credit card into your bank account you would be charged £40.
If you need to borrow cash, using a money transfer card could work out cheaper than withdrawing cash on a standard credit card.
Cash neededWithdrawal feeInterest rateMoney transfer feeTotal owed after 28 daysTotal owed after 90 days* Standard credit card
£500
3% (£15)
27.9%APR
N/A
£526
£550
Money transfer card
£500
N/A
0
3% (£15)
£515
£515
*assuming you have made no repayments
Just remember: don’t use a money transfer card to directly withdraw money from an ATM. Instead you need to transfer the money electronically from your credit card to your current account, and then withdraw it using your debit card.
Will withdrawing affect my credit score?
When you withdraw money from a credit card it goes on your credit report. It will remain on your credit report for up to six years. This on its own won’t damage your credit score as long as you pay at least the minimum amount on your credit card bill on time every month.
However, if you make lots of cash withdrawals on your credit card this could raise a red flag with lenders. This is because it suggests you are struggling with your finances.
Will a cash advance affect my mortgage application?
Withdrawing cash with your credit card occasionally is unlikely to affect your credit score, but it could be a different matter if you are considering buying a house.
Mortgage lenders go through your credit report more thoroughly than other lenders. Your lender may view withdrawing cash with your credit card as irresponsible. This in turn could affect the decision being made on your mortgage.
It’s wise to avoid withdrawing cash on your credit card for six months before you apply for a mortgage.
What to consider before you withdraw money from a credit card
Before you withdraw money from a credit card consider all the charges you’ll have to pay.
Take a look at the cash advance fee and consider the interest you will pay on the amount you withdraw before you pay your credit card bill.
If you repay the full amount when your credit card bill arrives, that is all you’ll pay and it won’t affect your credit rating. But if you don’t pay the full amount, then more interest will be charged.
Now think about how you’ll repay the money you withdraw. If you can’t repay at least the minimum payment, it will damage your credit score and you’ll end up owing even more in late fees and interest charges.
With all that in mind, consider if you really need the money. If the answer is yes, is there a cheaper way you could borrow it such as asking a friend or family member for a loan, or using a money transfer credit card?