Explaining The Credit Card Cash Advance Fee

You might have seen a cash advance fee on your credit card statement or just wondering what the fee is if you're thinking of withdrawing cash from your credit card.

The credit card cash advance fee is charged when you withdraw cash from an ATM machine or do other transactions that count as cash such as gambling. Most credit cards charge 3% as the cash advance fee but with a fixed minimum amount of £3.

Read on to find out exactly which transactions incur a credit card cash advance fee, when you'll have to pay it and some tips on how you can avoid or reduce the fee.

What is the credit card cash advance fee?

The credit card cash advance fee is a type of spend fee that is charged whenever you withdraw cash on your credit card.

This fee is charged on every cash transaction so if you make several different cash transactions, each one will have a fee calculated separately even if you do them on the same day.

The cash advance fee is then added to your credit card balance on top of the amount of cash you have withdrawn so make sure you account for the fee when you take cash out of an ATM.

Remember also that the cash advance fee is not the only thing you will be charged when withdrawing cash. You will also have to pay cash interest on the amount withdrawn. This interest will be charged daily and will be due even if you pay your credit card in full every month. If you don't repay your credit card in full, the interest is likely to be a higher cost on your cash withdrawal than the credit card cash advance fee.

What transactions incur the cash advance fee?

The general type of transaction that incurs a credit card cash advance fee is withdrawing cash, but there are some other types of transactions that are treated the same and will also incur a fee.

Here's a list of the common types of transactions that are classified as cash and will charge a cash advance fee:

  1. Withdrawing cash from an ATM - The most common way to incur a cash advance fee by sticking your credit card into the machine and getting cash out.
  2. Getting cash over the counter - You can get cash over the counter in a bank by using your credit card. Although it's a slightly different type of transaction, it will still count as a cash withdrawal.
  3. Gambling transactions - if you use your credit card for any form of online gambling or to pay in a betting shop, the transactions will classify as cash rather than purchases and you will have to pay the cash advance fee. Be careful as some things you may not consider gambling as still classified as such - if you buy a lottery ticket, pay a fee to set up a fantasy football team or play bingo online, these will all come through as cash transactions.
  4. Currency exchange - if you use your card to purchase a foreign currency in store or online, these will come through as cash withdrawals. Just because it's not pound sterling doesn't mean it's not cash!
  5. Gift cards - if you buy a gift card online or in a store, this may come through as a cash transaction if that is your only purchase.

Remember also that although some of the above are technically cash transactions and will incur cash advance fees, you may be able to avoid paying the fee depending on how your purchase them.

If you buy a gift card or a lottery ticket in a supermarket or a local convenience store along with other purchases, the transaction-level data will not be supplied to the credit card provider.

If you only buy the gift card, your luck will depend on the exact store and how their payment systems are set up, but if you have a mixed basket with other regular purchases as well, in almost all cases, the entire transaction will go through as a purchase even if a part of it is technically cash.

Take care as some larger supermarkets and till systems are in the process of working with payment schemes to increase the level of data exchange so this may begin changing in the future if individual transaction data is supplied to the credit card companies.

How much is the credit card cash advance fee?

In the UK, the vast majority of cash advance fees are 3% with a minimum of £3. Some lenders will charge 2.99% and sometimes 2.95% or even 2.9%, but they will all roughly be the same.

Make sure you check the summary box when you apply or your statement/online account if you already have a credit card - some credit cards may have higher cash advance fees of up to 5%.

Pay attention to the £3 minimum that is applied by virtually every credit card lender. If you withdraw a small amount of cash from an ATM, you will still be charged that £3. Even if you're taking out £30, that's a hefty 10% cash advance fee you'll have to pay on the transaction!

This can be particularly painful if you don't think about it and buy a £2 lottery ticket with your credit card only to find out that you had to pay a £3 fee on top.

If you withdraw cash frequently and you absolutely have to withdraw cash from a credit card, it makes more sense to withdraw £100 or more and keep the spare cash for the next time you need it to reduce the fees you pay on withdrawals. Remember that you'll still have to pay the high cash interest rate on these amounts so repay your card as quickly as possible to reduce the overall cost.

When will you have to pay the cash advance fee?

As cash advance fees are not classified as default fees, they will simply be added to your cash balance bucket on your credit card when you make the transaction.

You will not have to explicitly pay them on your next statement as part of the minimum payment calculation, but these fees to become part of your balance and incur interest in the same way that the rest of your cash balance does.

The good news is that that regulations on the way payments are allocated in the UK mean that cash advances will usually be repaid first out of the different types of balance on your credit card because they will have the highest interest rate.

This means that when you withdraw cash, the cash advance fees and the rest of your cash balance will be the first to be repaid next time you make a payment.

Unlike some fees, the cash advance fee will go onto your account immediately when you make the withdrawal - you should see it on your online account right away or within a day or two depending on your credit card provider.

So if you make a payment before your next statement is generated, you will be able to repay the cash advance fee sooner and reduce the total interest you will have to pay.

Can you reduce or avoid the credit card cash advance fee?

There is no simple way to reduce or avoid the credit card cash advance fee other than to not withdraw cash on your credit card.

As I mentioned above, if you're buying a lottery ticket or a gift card in a supermarket alongside other purchases, the likelihood is that the transaction will go through as a purchase transaction and no cash advance fee will be charged.

Unlike debit cards, you can't use a credit card to get cashback at the till so you can't beat the system by doing that.

If you plan for it, there are a few alternative ways of getting cash from a credit card without paying a fee. If you have direct debits set up on your current account and instead of that month's direct debit, you are able to make a payment with your credit card (therefore reducing the direct debit to £0), you could withdraw cash from your debit card instead and not have to pay a fee.

Another cheeky way is to offer to pay for a meal with your credit card next time you go out with a group of friends if they are happy to contribute cash - that way you have effectively paid for your meal and taken a load of cash out at the same time, but without having to pay a cash advance fee for the privilege!

Banks and credit card companies will never offer promotional rates on cash withdrawals so don't wait for one of those to come through the door.

If your credit card has money transfers, however, you may get promotional rates on money transfers instead and sometimes these come with no cash advance fee or a reduced percentage.

In this case, you'll be able to reduce your cash advance fee by doing a money transfer to your current account and withdrawing that money using your debit card, only paying the lower money transfer fee instead.

Inked Pixels/Shutterstock.com