Many UK credit card holders are withdrawing cash from ATMs using their card, oblivious to the cost implications of doing so, according to the comparison website Moneysupermarket. Ironically, many of those people are withdrawing cash to pay for an item or items which they could have purchased using their card and therefore avoided the charges and fees incurred altogether.
According to the financial comparison website almost £8.5 billion is withdrawn each year from ATM’s by UK credit card holders. But, this method of obtaining cash is one of the most expensive ways of borrowing. Even if the cash is paid back the same day, a transaction charge will still apply. There are two main reasons why cash withdrawals are so costly; most credit card companies charge a percentage or flat fee for the withdrawal, often a minimum of £2.50, and usually up to 3% of the total transaction value. Also cash withdrawals from ATMs are treated as cash advances which tend to attract higher interest rates than those on purchases. However, unlike purchases made with the card which carry a grace period, interest is charged from the day of the cash withdrawal until it is fully repaid.
So, even if the cash amount and transaction charges are repaid at the first available statement date it is still an expensive way to borrow money. It becomes exponentially expensive if the cash withdrawal transaction is made and only minimum payments are made by the card holder each month. Industry experts estimate the annual cost of a £20 cash withdrawal to be as high as £10. That equates to 50% of the sum withdrawn in interest, charges and fees. Imagine completing several cash withdrawals of £100 and the charges will soon mount up, especially if purchases are made too, as on most credit cards the cheapest form of borrowing is usually the first one to be paid off your debt.
If you are likely to make cash withdrawals using your credit cards then make sure that you choose the credit card that is cheapest for cash withdrawals. It is easy to compare credit cards and the interest rates payable upon them, by going to an internet comparison website where all the benefits and charges are laid out. There are many credit card deals on the market at the moment and it’s a case of making sure that the one chosen is most appropriate for the way the card will be used.
So, if you have UK credit cards in your wallet and you’re tempted to use them to withdraw cash from ATMs, then think very carefully about how much it will cost you before you do!
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