The Cost of Credit Card Cash

Most credit cards these days offer the ability to withdraw cash direct from an ATM. While this can undoubtedly be useful in an emergency when you really have no alternative way of getting hold of ready money, it's not something you should do lightly - it's hugely expensive, for three main reasons.

Withdrawal Fees

For each withdrawal you make, whether through an ATM or over the counter, you'll be charged a flat fee of around £3. While this might not seem a lot, in percentage terms it can look pretty outrageous, especially if you're only withdrawing a small amount. If £10 taken from a machine actually costs you £13, then clearly this is not a good deal.

No Interest Free Period

Most credit cards offer an interest free period of up to 60 days between making a purchase and interest being charged on it (so long as your balance is cleared in full each month). This 'grace period' generally doesn't apply to cash withdrawals, whether or not you pay off your balance when your statement arrives. In other words, your cash advance will always cost you in interest as well as being charged a flat fee.

Excessive Interest Rates

Have you checked your statement's small print recently? While standard card purchase rates average around 16% these days, the levy on cash advances is almost always much higher. 25% isn't unusual, and some cards even approach 30% - clearly not a good rate to borrow at. To make matters even worse, so long as you have some purchase or balance transfer debt on your account, none of your repayments will touch the debt built up by cash withdrawals, and it will just sit in your account being charged this sky-high rate indefinitely.

So as we can see, cash withdrawals really are a pricey way of getting hold of money. Credit card companies love the extra profits they bring in, which is why they make great play of publicising the facility without perhaps drawing due attention to how much it'll end up costing the cardholder.