From time to time, we all need cash. And then, many of us turn to our credit cards and a local ATM. That simple action usually comes with some serious fees, which we’re going to explain in today’s article. Here are 4 things to know about cash advances (so you could avoid them)…
1. Cash advances are not free
Most credit cards, even those reserved for folks with an excellent credit score, have a cash advance fee which is typically 5% or $10 per transaction — whichever is greater. So if you need to get $30 from an ATM using your credit card, that will cost you a total $40. Use a (debit) card dedicated for ATM withdrawals, instead. No need to pay extra when you don’t have to.
2. Cash advances incur a high interest rate
As far as credit card companies are concerned, cash advances bear a higher risk than regular purchases thus they come with a higher interest rate to compensate for the higher risk.
For instance, if your credit card has an APR of 16%, chances are the interest rate for cash advances is north of 20% (usually somewhere between 22% and 30%).
3. Cash advances have no grace period
With regular purchases, you can pay your balance in full at the end of the month and you don’t have to deal with interest. That doesn’t work with cash advances — you can’t forgo paying the hefty interest. Also, you’ll be incurring interest on your cash advance from the day they’re made until you make a payment.
So if you have to make a cash withdrawal with your credit card, make sure you pay it back as soon as possible.
4. Cash advances can be charged alongside foreign transaction and ATM fees
If you need cash in a foreign country, the fact that you will incur a high interest on cash advance doesn’t mean you won’t be paying the foreign transaction and ATM fees, as well. These two will add up to your bill, with a foreign transaction fee typically adding an additional 3% or $5 — whichever is greater — on top of it. Also, since you’ll be using an ATM that isn’t operated by your bank, you may have to pay extra for using that machine.
The lesson here is simple – don’t make cash withdrawals on an ATM in another country. In fact, you shouldn’t make cash advances at all; always carry a dedicated card for ATMs and use it instead. As we said it before, there is no need to leave any money on the table.