A cash advance fee is a charge you may receive for withdrawing funds from a credit card account. This can be done at an ATM, online, or at a branch of your bank.
What Is A Cash Advance Fee?
Have you ever had a financial emergency and the only available option for some quick cash was getting a cash advance on your credit card? If so, you probably found that the fees in a credit card cash advance were different from your normal credit card purchase fees.
Additionally, the cash advance balance is also subject to a different annual percentage rate (APR – the annual interest rate) compared to the purchase balance APR. Below is an overview of what you need to know about the cash advance fee and the related cash advance costs.
Cash Advance Fee Basics
Just as the term suggests, a cash advance lets you get cash using your credit card. This is different from the conventional use of credit cards to purchase items without cash. It may be useful when buying items that you cannot use credit for, such as making purchases from friends and family who do not take credit cards.
Taking out cash from your credit card is different from withdrawing cash from your debit card. The cash you get from your debit card comes from your checking account; whereas, a credit card cash advance is effectively borrowing from your credit card limit.
The credit card cash advance comes with a fee and other related costs that you pay when repaying the money, just as you do with credit card purchases. You can get a credit card cash advance through several means that vary based on your credit card company, including:
- From an ATM
- Through a bank teller
- Moving cash from your credit card to a checking account
- Cashing a convenience check
How Does a Cash Advance Fee Work?
When you perform a cash advance transaction, the card company may either charge a flat fee or a percentage of the transaction. The fee is sometimes the higher of the two options.
Keep in mind that the amount of the cash advance fee may also vary based on how you access the cash. You may incur varying costs depending on whether you access the cash from an ATM, through a bank teller, by moving cash from your credit card to a checking account, or by cashing a convenience check.
Apart from the cash advance fee, card issuers will also charge interest on your cash advance balance, since you’re essentially borrowing cash from your credit card account. This interest charge is different from the interest charge on normal credit card balances.
The cash advance APR is typically higher than other credit card balance APRs, including the APR on a purchase balance. Also, the cash advance APR starts accruing immediately because it doesn’t have a Grace period. This is the main difference between a credit card purchase and a credit card cash advance.
Each credit card comes with different APRs, fees, and terms. Reading the fine print on your specific card will tell you what the interest rate and other terms are for your situation. There are several conditions related to the two main methods through which you can access a cash advance:
- Withdrawing cash from an ATM: Here, the cash advance is subject to a cash credit limit, which is normally a fraction of your total credit line. Your credit card issuer will provide you with details of your cash credit limit and the PIN required to make a cash advance at an ATM.
- Using your credit card to write checks or transferring money into a bank account: This type of cash advance may be subject to a lower cash credit limit than the ATM withdrawal method.
How Much is a Cash Advance Fee?
Compared to all other credit card fees, cash advance fees tend to be the highest. A cash advance provides some convenience and speed in accessing cash fast, but that comes at an extra cost, which can be an additional $10 to $50 in fees.
Credit card issuers may use one of the following methods to calculate your cash advance fee.
- A flat rate fee: The card issuer charges a fixed amount regardless of how much money you withdraw. For many banks, the flat rate fee is usually about $10. That means, if you withdraw $370, you will have to pay $380.
- A percentage of the amount you withdraw: The percentage often ranges between 2% and 5%. Therefore, if you withdraw $370, your fee would range between $7.40 and $18.50.
- A combination of a flat rate and percentage fee: Most card issuers charge either a percentage of the amount withdrawn or a minimum flat rate – whichever is higher. That means if the percentage fee of your cash advance balance is lower than the flat rate, you would pay the flat rate. For instance, if the fee percentage is 5% and the flat rate is $10, you would pay $10 flat rate for a $50 cash advance instead of the percentage fee of $2.50.
Cash advance fees have been increasing over the last few years. According to WalletHub’s Credit Card Landscape Report, the current average cash advance fee is 3.9% or $12.41.
One more factor to consider is the costs related to the withdrawal method you use for your cash advance. For instance, if you take out a cash advance through an ATM, you’ll likely incur an ATM owner surcharge. This further adds on to the other costs of a cash advance fee and interest charged by your card issuer. The average fee to withdraw money from out-of-network ATMs is about $4.72.
Foreign Cash Advance Fees
Cash advance fees also vary based on the currency transacted. If you’re travelling and you try to access a foreign currency cash advance from your credit card, you may incur higher fees. Some credit cards add between 1% and 3% to your cash advance with foreign transactions, which is in addition to ATM fees and the currency exchange.
Cash Advance Fees on Cash Equivalent Transactions
A cash advance fee may also apply to cash equivalent transactions. Some examples of cash equivalent transactions include:
- Using your credit card as overdraft protection
- Purchasing a Money order
- Putting money on reloadable gift cards
- Buying lottery tickets
- Sending money to another person
A cash equivalent transaction is treated like a cash advance even when you don’t take out cash from an ATM. However, the cash equivalent transaction fee may be different from a regular cash advance fee.
Other Costs Related to a Cash Advance: Interest
The interest on your cash advance balance applies as soon as you withdraw money from an ATM, transfer cash to a deposit account, or use a check. This is unlike the typical 21 to 25 day grace period that applies to most credit card purchase balances. The cash advance APR ranges between 20% and 36%, with an average of 21.20%. That’s frequently higher than a credit card purchase balance APR, which typically ranges between 14% and 23%.
Why Use a Cash Advance?
A cash advance may be useful in several situations, including:
- Providing funds to cover an emergency expense that you can’t charge to your credit card. You may need to make a purchase, but the seller doesn’t accept credit cards.
- Getting fast access to cash. You may need money urgently and a credit is the quickest option available.
- A credit card cash advance may be a less costly option than a bank overdraft.
- When you lack other alternatives to access cash, a cash advance may provide the financing you need.
In all these cases, always compare the cost versus the potential benefit before making a decision. It’s also important to understand how your credit card payments are applied to a cash advance balance, so you can avoid accruing high interest on the balance.
A key aspect to remember is that a cash advance balance is usually treated as separate from your purchase balance. This is a good thing, since the higher cash advance APR that accrues without a grace period only applies to the cash advance balance.
What you should take note of is how your payments are applied to your cash advance balance and purchase balance. When you make the minimum credit card payment, that amount may go toward the purchase balance first. Thereafter, any payment over the minimum might be applied to your higher-interest balance, but not always.
In general, to pay off your cash advance balance (including the cash advance fee and interest), you will probably have to make more than the minimum credit card payment.
How to Find Out Your Credit Card’s Cash Advance Fee
Under the Fair Credit Reporting Act, your card issuer is required to disclose your cash advance fee and provide information on how it’s calculated. You can find the details on your credit card agreement or the back of your billing statement.
Credit card issuers typically provide their customer service department number on the back of the credit card, so customers can call to have their questions answered as well.
Ways to Limit Cash Advance Fees
Since cash advance fees and related costs can be expensive, you can try different strategies to limit them, including:
- Understand the type of fee: If your fee is a percentage of the overall cash advance, you can limit the total fee charged by withdrawing only as much as you need. If the fee is a flat rate, you can limit the total fee charged by taking all the cash that you’ll need at once. This saves you from paying the flat fee for multiple smaller transactions.
- Limit your cash withdrawal: Since a cash advance APR applies to your balance, you can limit the amount of interest you pay by limiting the cash you withdraw.
- Avoid foreign cash advances: When travelling outside the country, possibly consider a local credit card so you don’t incur higher foreign cash advance fees with your U.S. credit card.
- Use the cheapest cash withdrawal method: Depending on your credit card, figure out which cash withdrawal method is least costly and use it.
- Plan for quick repayment: Since cash advances don’t have a grace period, the interest rate kicks in as soon as you make the transaction. Plan beforehand to repay the cash advance as quickly as possible.
How to Avoid Cash Advance Fees
Apart from limiting your cash advance fees, you may have other options to avoid the fees, including:
- Use your credit card to make purchases: Wherever you get the option, charge purchases to your credit card instead of getting a cash advance.
- Avoid unnecessary purchases: Consider if the purchase with a cash advance is worth the extra fees. You might want to look for an alternative that doesn’t require a cash advance.
- Monitor your bank account balance: If you normally end up using a cash advance when your bank account runs low on funds, try to avoid it by keeping track of your account balance. With online banking, you can set up email or text alerts to notify you if your account balance drops below a set amount.
- Build an emergency fund: An emergency fund may serve your financial needs instead of getting a cash advance.
- Apply for a loan: You may qualify for a loan at a favorable interest rate, which can be less costly than a credit card cash advance.
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