Our new research exposes the excessive cost of withdrawing cash using credit cards. It's shocking stuff!
When it comes to withdrawing cash, there are huge differences between credit cards and debit cards. If you fail to understand these differences, then you could lose a small fortune!
When you use your debit card to withdraw cash, almost all cash withdrawals (from ATMs and `over the counter') will be fee-free. This doesn't apply if you use your debit card in `convenience' cash machines and those which lie outside of your bank's cash-machine network. On these occasions, you can expect to pay a withdrawal fee of, say, £2 for gaining access to your current account.
On the other hand, if you use a credit card to withdraw cash, then you're in for a shock, thanks to these four traps:
1. If you pay off your monthly credit-card bill in full, then you can enjoy up to 59 days of interest-free credit. However, this interest-free period does not apply to cash withdrawals, on which interest starts accruing immediately.
2. The interest rates applied to cash withdrawals don't match those for purchases. In fact, they are massively higher, with some cash interest rates exceeding 28% APR. With the Bank of England's base rate at just 5%, these rates are a royal rip-off.
3. As well as higher interest, you can expect to pay a cash-withdrawal fee of up to 3% of the amount withdrawn, with a minimum fee of £3.
4. Lastly, when you come to pay off your credit-card bill, your repayments will reduce your cheapest debt first. In other words, interest will continue to accrue on cash withdrawals until your entire balance (including interest) is repaid in full. This is known as a `negative payment hierarchy'.
By the way, the above charges also apply to cash withdrawals overseas (plus an additional `currency-conversion fee', which adds a further 2.75% to the cost of using foreign cash machines). They often apply to the credit-card cheques which card issuers send to customers. So, before using a credit-card cheque, check its terms and conditions in order to make sure that cash interest rates do not apply.
In exclusive research for The Fool, I checked 112 widely held and well-known credit cards in order to reveal the sinners and winners when it comes to withdrawing cash. Here's what I found:
Cash interest rates of under 20% APR
Card issuer | Cash interest rate (% APR) |
|---|---|
Egg Money MasterCard | 7.90 |
HSBC Premier MasterCard The Co-operative Bank Clear Visa | 11.90 |
Barclaycard Student MasterCard | 14.90 |
First Trust Bank (NI) Visa Option 3 | 14.95 |
Barclaycard Simplicity Visa | 15.80 |
First Trust Bank (NI) Visa Option 2 | 16.95 |
Coutts & Co Classic Visa | 17.46 |
Northern Bank (NI) MasterCard/Visa | 17.88 |
First Trust Bank (NI) Visa Option 1 John Lewis and Waitrose MasterCard | 18.90 |
Sainsbury's Bank MasterCard | 19.95 |
The gold medal in this section goes to the Egg Money MasterCard, which charges a typical rate of just 7.90% APR for cash withdrawals. This is a lower rate than almost any credit card charges, even for purchases, making it our Best Buy in this category. Next come the Don't Buys:
Cash interest rates of 20% to 25% APR
Card issuer | Cash interest rate (% APR) |
|---|---|
Virgin Money Atlantic Black/White Amex | 20.90 |
Bank of Ireland (UK) MasterCard/Moneyback | 20.94 |
First Direct Visa HSBC Bank MasterCard Marks & Spencer Money MasterCard | 21.90 |
Britannia BS Classic Intro Visa | 21.95 |
Ulster Bank (NI) MasterCard/Visa | 22.34 |
Abbey MasterCard/Visa Nationwide BS Classic Visa | 22.90 |
AA MasterCard/Online MasterCard Amazon.co.uk MasterCard Intelligent Finance Flat Rate MasterCard Norwich & Peterborough Visa | 22.95 |
PayPal MasterCard | 22.96 |
Morrisons Credit Card | 23.60 |
Smile Classic/Current Account Visa Yorkshire BS Classic Visa | 23.90 |
Bank of Scotland (all MasterCards) Halifax (all MasterCards) | 23.95 |
Cheshire BS MasterCard Egg Visa SkyCard MasterCard Virgin Money MasterCard | 24.90 |
MINT MasterCard NatWest (all MasterCards/Visa) Post Office Classic MasterCard Royal Bank of Scotland (all MasterCards/Visa) Tesco Personal Finance MasterCard/Visa | 24.94 |
Cash interest rates of over 25% APR
Card issuer | Cash interest rate (% APR) |
|---|---|
Abbey Zero MasterCard | 25.90 |
Leeds BS MasterCard | 26.80 |
Alliance & Leicester (all MasterCards/Visa) Bank of Cyprus Visa Barclaycard Graduate, Initial, OnePulse MasterCard/Visa BMW Card Amex British Airways (all Amex) Lloyds TSB (all Amex/MasterCards/Visa) MBNA (all Amex/MasterCards) Shell MasterCard SonyCard Amex/MasterCard/Visa The Nectar Amex | 27.90 |
Bank of Scotland Classic MasterCard Halifax Classic MasterCard | 27.95 |
bmibaby MasterCard easyJet MasterCard | 28.01 |
ASDA MasterCard House of Fraser DualCard MasterCard | 28.39 |
Mothercare MasterCard | 28.40 |
Debenhams MasterCard | 29.95 |
Capital One Bank Classic Visa | 34.94 |
aqua MasterCard | 39.95 |
Vanquis Bank Visa | 46.19 |
As you can see, three credit cards have the cheek to charge over 30% APR for withdrawing cash. What a swindle! Now for the fees linked to cash withdrawals:
Cash-withdrawal fees under 2.50%
Card issuer | Withdrawal fee (%) | Minimum fee (£) |
|---|---|---|
Abbey Zero MasterCard Egg Money MasterCard The Co-operative Bank Clear Visa | 0 | 0 |
Bank of Ireland (UK) MasterCards First Trust Bank (NI) Visa | 1.50 | 3 |
John Lewis and Waitrose MasterCard | 1.75 | 2.50 |
Coutts & Co Classic Visa | 2.00 | 1.50 |
Northern Bank (NI) MasterCard/Visa Post Office Classic MasterCard Ulster Bank (NI) MasterCard/Visa | 2.00 | 2.00 |
House of Fraser DualCard MasterCard Lloyds TSB Student MasterCard Mothercare MasterCard PayPal MasterCard Virgin Money Atlantic Black/White Amex | 2.00 | 2.50 |
Barclaycard Graduate, Initial, OnePulse, Simplicity & Student MasterCard/Visa First Direct Visa HSBC MasterCard/Premier MasterCard Lloyds TSB Amex, MasterCards & Visa Marks & Spencer Money MasterCard MINT MasterCard Morrisons Credit Card Vanquis Bank Visa | 2.50 | 2.50 |
Cash-withdrawal fees of 2.50%+
Card issuer | Withdrawal fee (%) | Minimum fee (£) |
|---|---|---|
Britannia BS Classic Intro Visa Abbey MasterCard/Visa Nationwide BS Classic Visa Norwich & Peterborough Visa Smile Current Account/Classic Visa Yorkshire BS Classic Visa | 2.50 | 3.00 |
SkyCard MasterCard | 2.95 | 2.95 |
AA MasterCard/Online MasterCard Alliance & Leicester (all MasterCards/Visa) Amazon.co.uk MasterCard aqua MasterCard ASDA MasterCard Bank of Cyprus Visa Bank of Scotland (all MasterCards) BMW Card Amex British Airways (all Amex) Capital One Bank Classic Visa Cheshire BS MasterCard Debenhams MasterCard Egg Visa Halifax (all MasterCards) Intelligent Finance Flat Rate MasterCard Leeds BS MasterCard MBNA (all MasterCards) NatWest (all MasterCards/Visa) Royal Bank of Scotland (all MasterCards/Visa) Sainsbury's Bank MasterCard SonyCard Amex, M'Card & Visa Tesco Personal Finance MasterCard/Visa The Nectar Amex Virgin Money MasterCard | 3.00 | 3.00 |
Shell MasterCard bmibaby MasterCard easyJet MasterCard | 3.00 | 5.00 |
As you can see, the final three credit cards charge a 3% cash-withdrawal fee, with a minimum fee of a fiver. Bluntly, these suck like an industrial vacuum cleaner, and should never be used to withdraw cash except in the direst emergencies!
Of course, my overall winner is the Egg Money MasterCard, which charges a cracking 7.9% typical APR for cash withdrawals, yet charges no withdrawal fees. No other credit card comes close for cash withdrawals.
Finally, if you are paying high rates of interest on existing credit-card debts, then kill your interest bill by using 0% balance transfers. Likewise, for interest-free purchases lasting up to a year, start using a 0% on purchases credit card. Why pay interest when you don't have to?
More: Find cracking credit cards via the Fool | Reclaim Your Bank And Card Charges | The Best Credit Cards To Use Abroad