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Brits withdraw £1.71bn in cash on their credit cards – but are you being ripped-off?

Banks charge more on credit card cash withdrawals – especially when you’re abroad

Withdrawing cash on your credit card is generally much more expensive than paying with plastic, especially on holiday – yet the number of these transactions has jumped over the summer, new data shows.

Over 12.8m cash advances – most often, taking cash out at an ATM with a credit card – were made between May and August 2018, up from 8% on the same period last years, Which? analysis of UK Finance figures has found.

Withdrawing cash on your credit cards tends to attract a much higher rate of interest, which is generally charged from the day you make the transaction, and lenders will levy a fee for the privilege.

Despite this, credit card users borrowed £1.71bn using transactions classed as cash advances – 5% higher than the same period in 2017. On average, borrowers took out £134, up from £128 last year.

Which? explores what a cash advance is, how much they can cost you, the impact on your credit score and what to do if you need some extra cash without the fees.


What counts as a cash advance?

The most common type of ‘cash advance’ occurs when you use a credit card to withdraw money at an ATM.

However, there are different types of credit card transactions that lenders count as a cash advance that could catch you out.

These include gambling transactions, buying foreign currency or traveller’s cheques and investing in cryptocurrency like Bitcoin.

Cash advances on holiday

UK Finance data reveals a trend for increased cash advances on credit cards during the spring and summer months, and fewer of these types of transaction in the autumn and winter.

This suggests the jump in the number of cash withdrawals could be destined for holiday spending, even though you’ll face additional fees abroad.

The cost of cash advances in the UK and abroad

A cash advance is typically much more expensive than just using your card to make a purchase at the till – especially when you do it on holiday.

You’ll normally have to pay a fee, which can be as high as 3%, as well as an additional interest charge. The average cash advance interest currently stands at 26.5% APR, according to Moneyfacts data – much higher than the interest on other types of transactions like purchases (21.4% APR on average) and balance transfers (20.8% APR).

If you’re abroad when you make the withdrawal, you’ll may also pay a non-sterling transaction fee and a non-sterling cash fee, as well as cash withdrawal interest.

As an example, the Sainsbury’s Bank Dual Offer Credit Card, which offers 29 months 0% on purchase, won’t charge you any interest on the spending you do with the card online or in the shops.

However, the moment you make a UK cash withdrawal, you’ll be hit with cash advance interest of 25.9% and a 3% cash advance fee – and if you do it abroad, you’ll also pay a non-sterling transaction fee of 2.75%.

So, taking out £130 on this credit card will cost you around £137 if you did it in the UK or over £140 if you made the withdrawal abroad, even if you repay it within a month.

Commonly cash advance interest is applied from the day the money is debited from your account until it is paid off in full. This may be the case even if your credit card offers an interest-free borrowing period on purchases.

So, even if you pay your bill off in full at the end of the month, you may still face an interest charge on cash withdrawals.

What the banks say

Banks claim they charge extra for cash advances because of the extra costs incurred.

A UK Finance spokesperson told Which?: ‘There are often additional costs for providers when credit card cash withdrawals are made, which may then be reflected in the overall fees applied.’

UK Finance says its statistics show the proportion of total credit card lending made up by cash withdrawals has remained fairly constant overall and has in fact gone down, from 2.66% between May-August 2017 to 2.61% in May-August 2018.

How credit card cash withdrawals impact your credit score

Apart from costing you more, using a cash advance on your credit card could potentially harm your credit score.

Credit reference agency Experian told Which? that using your credit card at the ATM is generally considered an indicator of risk, although it’s not common for lenders to use this type of activity in their scoring.

However, it’s important to realise that the activity is recorded on your credit report so any lender – even if they don’t initially use it to score you – could take it into consideration should they choose to.

This may happen if the lender needs to manually review your report, or it could be a factor in some lender’s affordability assessments, particularly for mortgages where the way you manage money is put under the spotlight.

How to avoid paying rip-off fees on cash advances

As a general rule, try to pay with your card at the till to avoid needing to withdraw cash on credit.

But if you need to use a credit card to make a cash withdrawal, make sure you check what fees will apply. This should be stated clearly in your credit card terms and conditions.

Keep in mind that charges for cash withdrawals vary and some lenders offer products that might be more suitable, depending on what you use the cash for. The below cards may be worth considering if you foresee needing to withdraw cash on credit.

If you need cash on holiday

If you need to spend abroad and are likely to need to take cash out, there are a number of specialist travel credit cards that will save you money.

The Santander Zero credit card comes with no foreign transaction fee (when made in the local currency) and no cash withdrawal fee wherever you use it. However, it attracts 18.9% interest on cash withdrawals as soon as the cash is debited from your account until it is paid off. This card has a representative of 18.9% APR.

The Barclaycard Platinum Travel credit card doesn’t charge a non-sterling transaction fees on foreign spending and ATM withdrawals (valid until 31 August 2022). Crucially this card offers a 56-day interest-free period on cash withdrawals abroad if you pay what you take out in full and on time each month. The card has a representative 21.9% APR.

If you need cash in the bank

With a 0% money transfer credit card, you can move money from a credit card to your bank account interest-free, plus a one-off handling fee.

These types of cards could be an option for paying off an expensive overdraft debt at a better rate Alternatively, if you need the money for a cash-only purchase, the card can help you borrow interest-free and avoid charges for taking the cash from your credit card.

The Tesco Bank Clubcard Credit Card for Balance and Money Transfers offers 36 months 0% on money transfers with a 3.94% fee. So, you could move £130 to your current account for £3.94 and not pay any interest.

Typically 0% money transfer deals are rare but can be found coupled with 0% balance transfer deals if you look closely.

Which? Limited is an Introducer Appointed Representative of Which? Financial Services Limited, which is authorised and regulated by the Financial Conduct Authority (FRN 527029). Which? Mortgage Advisers and Which? Money Compare are trading names of Which? Financial Services Limited.

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