Dodge this devious credit card trap

Are you being charged a higher interest rate on "cash" credit card transactions?

Savvy credit card users know that cards come with one APR for normal purchases and transactions and a higher APR for cash withdrawals. Those using their card sensibly will avoid withdrawing cash on their credit card unless it’s an emergency.

But credit card small print means they could be paying the higher APR for a raft of other “cash” type transactions, even though they really are nothing of the sort! What's more, this APR can be almost up to 30%, well above the average credit card APR.

Which transactions are treated as cash?

Credit card transactions that are treated as cash vary from provider to provider. However in general gambling transactions, purchasing foreign currency, electronic money transfers, postal orders and the purchase of travellers’ cheques are treated as cash withdrawals.

That means that if you use your credit card to buy gambling chips on an online gaming site or hand it over at a foreign exchange bureau to buy some holiday money, the transaction will be charged interest at a higher rate.

More scandalous is that consumers hitting the casino should also be aware that purchasing food, drink and other goods in a gambling establishment can bring about these cash withdrawal charges, so it’s best to pay with cash or a debit card.

Someone going on holiday to Las Vegas, for example, who bought their dollars at the airport using their credit card, bought food and drink inside the casino and paid for gambling chips with their credit card could return home to find all these transactions were treated as “cash”.

How much do cash transactions cost?

Again, this varies from provider to provider, but the one thing most credit card companies have in common is that they all charge more for “cash” transactions than they do for standard purchases.

The Virgin credit card, for example, has a standard APR of 15.8% but cash transactions are subject to an APR of 27.9%.

Meanwhile M&S Money’s Mastercard has an APR of 15.9% after a zero interest period of 15 months, but it charges a massive 23.9% interest on cash withdrawals. Halifax’s All-in-One Mastercard has an APR of 17.9% but hikes the rate up to 27.9% for cash transactions.

Read the small print

As well as a higher APR there are other downsides of using your credit card to withdraw cash or for cash transactions.

If you use a credit card to take cash out of an ATM there will be a fee for this. Tesco Bank, for example, charges 3% of the cash amount with a minimum of £3. If you take cash out abroad you’ll be charged a further 2.75% foreign loading fee.

So if you took £100 out of a foreign ATM, you’d be charged £5.75 (£3 ATM fee plus £2.75 foreign loading fee).

Interest charges

Cash withdrawals don’t benefit from 0% introductory offers either. Zero interest deals are only applicable to purchases.

Worse still you don’t benefit from the 56 or 60 days interest-free that is standard on credit cards. This gives clued-up credit card holders the chance to clear their bill before interest kicks in each month. But use your card for cash withdrawals and you’ll normally be charged interest from day one.

Credit card providers aren’t all as bad as each other though. Capital One charges the same rate of 16.8% that it does on purchases on cash withdrawals too. Saga charges 19.8% on cash transactions and gives card holders 55 days interest-free the same as it does on purchases.

Alternatives

In general it’s best to avoid using your credit card for cash or anything treated as cash, unless it’s an emergency.

If you can use a debit card or pay another way then do so. It will probably work out cheaper than a credit card cash withdrawal, even if it takes you overdrawn.

If you have to make a credit card cash withdrawal, make sure you clear your balance as soon as you can. Otherwise you could be in for a nasty shock when you get your bill.

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