If you're ever tempted to withdraw cash using your credit card, think again. The cost is way too high.
Credit cards can be great financial tools. Some of them will give you cashback on your spending, others allow you to borrow at 0% for a year or longer. And they all give you extra consumer protection when you make purchases worth between £100 and £30,000 – known as Section 75 protection.
However, if you use them in the wrong way, credit cards can be very dangerous. One example of that danger is using a credit card to withdraw money from an ATM. That’s a bad idea for three reasons:
- You’ll almost certainly be charged interest as soon as you withdraw the cash. Whereas when you make a purchase you won’t be charged interest for a period lasting up to 56 days.
- Most cards charge a higher rate of interest for cash withdrawals than for purchases.
- You’ll also be charged a cash withdrawal fee that could be as much as 5% of the sum you’re withdrawing.
To prove the point, I thought I’d look at the rates charged by ten popular credit cards. I should stress that the cash withdrawal charges for these cards aren't unusually high. I chose them to represent a fair sample of the credit card market.
Charges for credit card cash withdrawals
|
Credit card |
APR for cash withdrawals |
Charge for cash withdrawal |
APR for other transactions |
Comments |
|
49.9% |
3% or £3, whichever is larger |
39.9% |
Card is aimed at people with poor credit rating. Can help to improve credit history. |
|
|
34.9% |
3% or £3 |
34.9% |
Can help to improve poor credit rating |
|
|
AA Rewards Credit Card |
27.9% |
5% or £5 |
16.9% |
Earn AA reward points as you spend. Double points for petrol purchases. |
|
Play.com credit card |
27.9% |
5% or £5 |
16.9% |
Earn points to spend at Play.com |
|
Asda Money Credit card |
27.9% |
3% or £5 |
14.9% |
1% cashback on your spending at Asda |
|
Arsenal Credit Card |
27.9% |
5% or £5 |
18.9% |
|
|
27.9% |
3% or £3 |
17.9% |
Good card if you want a 0% deal for balance transfer and new purchase on the same card. |
|
|
25.9% |
3% or £3 |
17.95% |
5% cashback on Sainsbury’s spending for first three months you have card. |
|
|
23.9% |
3% or £3 |
15.9% |
15-month 0% period for new purchases |
|
|
Bank of Scotland Platinum Credit Card |
17.95% (higher for some people) |
3% or £3 |
17.95% (higher for some people) |
|
You’ll see that the highest charging card in the table is the Vanquis Visa card. It charges a whopping 49.9% for cash withdrawals. As this card is aimed at people with a poor credit rating, that’s not that surprising.
The more typical rate is around the 25% to 30% mark – that’s what most cards charge. Still way too high though.
Fees are normally 3% or 5% of the money you take out from the ATM. Usually there’s a £3 or £5 minimum too.
It’s also interesting to note that some of the cards in this table are actually very good cards. For example, the Halifax All in One MasterCard lives up to its name by offering great deals both for balance transfers and new purchases.
You can transfer a debt to the card and not pay any interest for 15 months and you can make a purchase and not pay any interest for 15 months as well.
It’s a good card as long as you don’t use it to withdraw cash from an ATM.
I also like the Sainsbury’s Cashback Credit card and M&S Credit Card.
The Sainsbury’s card gives 5% cashback on your shopping at Sainsbury’s for the first three months you have the card (up to a maximum of £50 cashback each month.) Beyond the three-month period, you’ll get a £5 bonus each month if you spend at least £250 at Sainsbury’s and £250 elsewhere.
With an M&S card you’ll earn reward points every time you spend and there’s also a 15-month 0% period for new purchases. Be careful though, as with all new purchase credit cards, the 0% period begins when you take out the card, not when you purchase the item.
So the message is clear: stick to using your credit cards for purchases and balance transfers. Never withdraw cash on them.
More on credit cards:
The best cashback credit cards