Avoid Credit Card Cash Advances!

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Johnny Cash Rocks, Cash Advances Don'tReader Jane emailed me last week to warn me about cash advances on credit cards. She recently stuck her credit card into an ATM, withdrew money, and was surprised to learn all the fees associated with a cash advance. She was in a bit of a pinch (she didn’t elaborate, nor did I ask) and needed cash but she left her ATM card at home, so she resorted to her credit card thinking a cash withdrawal from an ATM would be the same as a charge. Unfortunately she was wrong.

What is a cash advance?

A credit card cash advance is when you take your credit card to an ATM and withdraw cash. There are other scenarios but that one is the most common one people run into. The cash advance is not considered a regular purchase and its treated differently on the card, more on that later. Finally, your cash advance limit will almost always be lower than your credit card’s credit limit.

Why are cash advances bad?

Cash advances are bad for a variety of reasons. First, they’re not considered regular purchase charges on your credit card. The credit card will charge you a fee for the cash advance, something like of 3% of the withdrawn amount. They will also charge you a higher interest rate on the cash advance balance. On one of my cards, the purchase APR is 19.99% while the cash advance APR is 21.99%. Finally, there is no grace period on cash advance balances. You will be charged interest from the day you withdraw the money.

And to add insult to injury, the bank ATM you’re using will probably charge you their standard non-customer ATM fee, which can run several dollars. The credit card cash advance is the equivalent of the nuclear option, when all other options have failed.

When are cash advances OK?

If no one ever used a cash advance, they wouldn’t exist. So when is it OK to use a cash advance? When you need cash during an emergency and there are no other options. In Jane’s case, it didn’t seem like there were many options available because she didn’t have her debit card and her situation forced her to use cash. Sometimes you just have to pay the toll.

Turning credit into cash

If she had more time, I would’ve recommended that she try to find a grocery store. Many, but not all, grocery stores offer cash back on purchases. You could go into the grocery store, buy something small, and then get some cash back on the purchase. The grocery store will add the cash back onto your grocery bill and the credit card will treat it as a normal purchase.

While it would be easy to simply say – “Never ever get a cash advance.” What’s best and what reality deals you doesn’t always agree, so you have to be pragmatic and adapt to the situation. If you have no choice, just recognize the penalties of using a cash advance and be sure to pay off the advance balance as quickly as possible.

(Photo: timpatterson)

{ 32 comments, please add your thoughts now! }

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32 Responses to “Avoid Credit Card Cash Advances!”

  1. Excellent advice. The interest on advances can be quite high because the period can be quite long.

  2. Steven says:

    Wait, credit cards let you get cash back? I’ve never seen that option unless it was a debit card, and you must use the PIN.

    One of my buddies in college noticed a pricing error on The Band of Brothers DVD pack, on sale for $10.00, instead of $100+. He went to the ATM and got a cash advance to buy the whole stock and not be traced with a CC #. Not ethical, but it is one situation.

    Of course, the statement shock (not the charges)could have been avoided by reading the contract for the card.

  3. Denise says:

    I get cash from the grocery store all the time, using my debit card. Only once in a while have I gotten cash back with my credit card, not using a pin. Once in awhile I can use the credit card at the gas station, I ask for $35 of gas, pump $29.88, and get the $5.12 back in cash, but usually they just putting it back on the card. 99% of the time though, it just goes back on the card or you have to use a pin. (And my understanding is that using a PIN makes it a cash advance.)

  4. Leah says:

    Great article! And speaking from unfortunate personal experience, I’d like to add two things:

    1) Not only do cash advances have higher interest rates than purchases, but (for some credit cards, at least) they’re paid off last. In other words, if I have a $50 cash advance balance on my credit card and a $500 purchase balance, and I send $250 to the credit card company, my entire payment will go towards the purchases. Nothing will go to the cash advance balance until the purchases are paid off.

    2) Sending money through Western Union with a credit card is treated as a cash advance.

    Ah, well. Live and learn!

  5. When I was in Ireland in 2002, my bank cut off my debit card despite the fact that I told them that I was leaving the country. I had to use my credit card in an ATM because I had no other choice. That was quite a depressing credit card statement…

  6. CK says:

    I take out cash advances all the time for the points.

    • daemondust says:

      Are you sure you get points for them? Every card I’ve seen doesn’t give rewards on cash advances. And even if they did, I’d be surprised if it was worth the fees.

    • LM says:

      I am thinking the same thing. Although I’ve never used a cash advance, I pay off each time I receive the bill. Is it wise to do this just for the points? What is the fee? And lastly, does the fee outweigh the benefit of points?

  7. daemondust says:

    I’ve never gotten the ‘cash back?’ prompt when using anything but a debit card.

  8. Broke M.B.A. says:

    Great advice. On the same note, I’ve never heard anyone say kind words about the Payday Loan shops. It would be interesting to compare interest rates and terms between cc cash advances and payday loan advances.

    Obviously neither is a very good idea if you can help it!

  9. eric says:

    People seem to be confused. You CAN get cash with credit cards if you use an ATM, not at a cashier register normally.

    I’ve known about this (and I do warn others) but I can see how someone can mistaken it for a charge instead of an advance.

    Bottom line: you got to be on guard (read statements/fine print) with credit cards.

  10. The charges and fees associated with cash advances are astronomical. I made this mistake many years ago and once I finally paid it off, I vowed to never to it again.

    I don’t know any of the PIN numbers to any of my credit cards to make sure I never take a cash advance. When the credit card company sends me a PIN, I immediately shred it.

  11. JimmyDaGeek says:

    Your reader is symptomatic of this entire financial crunch we are suffering. People have been taking financial actions without taking the time to understand their ramifications, and then complaining about the unfairness of it all.

    Yes, the banks and the CCCs charge gobs of fees. If you don’t want to pay the fees, pay attention to your accounts and make sure you know what money is going in and out of them. Don’t assume anything. I have been caught when I either missed a payment date or was trying to juggle balances between accounts. In short, everything has been my own stupidity.

  12. Cheap Bastard says:

    Everyone is overlooking something. If you know how to game the system, credit card cash advances are not just for emergencies – they’re very instrumental to get foreign cash. It’s actually the better than using a cash exchanger.

    Here’s how:

    Take a Capital One or Charles Schwab visa card to Europe at a time when they’re waiving transfer fees (they often do this as a promo). If they’re not running the promo, it wouldn’t hurt to ask if something can be arranged.

    Before you leave on your trip, make a small purchase to ensure that you have a balance on the card. Then immediately make a deliberate overpayment. Not online, but send a check for a couple thousand – or whatever you will need abroad. The bank must credit the whole check toward your balance, they have no choice. You’ll end up with a big credit on your credit card. (online drafts won’t work here, because the banks website will refuse to draft more than the balance.)

    When you get to the foreign land, make your cash withdrawal from an ATM. There will be no transaction fee because you made sure in advance that it would be waived. Interest would normally begin the day of the withdrawal, but because you started with a big credit, there is no interest charge either, not even for a day. Normally there’s a ForEx charge, but if you use a Schwab card or Cap One card, there is no forex cost either.

    I’ve personally tested this. Tried and proven, it works.

  13. SavingEverything says:

    Sounds nice Cheap. But, are there any credit cards now that offer promotional zero cash advance transaction fees? And, how high is the interest rate on the cash advance? (are you talking about balance transfer or cashadvance, or both?) All credit cards that I’ve seen now from FIA Card Services (Bank of America), Chase, PNC, Wachovia/WellsFargo, CapitalOne have transaction fees of at least 3%; a good number of them have both balance transfer and cash advance transaction fees at 4% or even recently changed to 5%, and minimum $15 and no maximum. Plus, interest rates for cash advances are mostly 19.99%, a good number are much higher and at 24.99%! Early 2009, FIA Card Services had some good credit cards: the ML+ Merrill Lynch Plus credit card had very low rates: 3% transaction fee for cash advances or balance transfers with $75 max; and interest rate for cash advance was only 9.99%! That’s changed. Some other FIA brand cards had maximum $75 fee; but interest close to 20%. But, that’s gone. Sadly, I had an experience where I overpaid a bill by check by several hundreds; and, found out that the credit issuer sent out a check of the overpayment to me immediately on the day prior to the actual posting date of my cash advance. I ended up paying alot in fees; may have been cheaper if I’d couldve western-unioned myself in vacation place?

    • Cheap Bastard says:

      This time last year, Capital One had no transaction fee on cash advances, and it spanned at least a few months. I was maxing my cash advance about every couple weeks until I got a euro account opened.

      It doesn’t matter if the interest rate is 110%, because you’re not subject to it if you have a credit.

      I’ve never heard of credit issuers immediately sending a return check to zero the balance. I’ve seen a couple cards do this after the balance sits dormant for several months. Capital One doesn’t do that. The strategy I posted works on Capital One cards.

  14. Good advice because many people do not realize that the APR for a cash advance is much higher than the regular APR for regular card purchases.

  15. SavingEverything says:

    Thanks. In regards to cash advances, I’ve heard that you can use YourBank’s Checking Account’s Debit Card (visa or mastercard) for cash advances by going to any financial institution (FI) with properID, card, and request your $ amount (either no more than yourbank’s daily cash or pos (?) withdrawal limit or the FI’s limit). But, it seems that most of YourBank’s will impose a $2, $3, $5 transaction fee. However, I’m unclear if they will also charge a POS transaction fee, from 1-3% of the amount?!? Does anyone know? Such as the INGDirect Electric Orange checking? SunTrust? PNC? BankofAmerica? Chase? CapitalOne? WellsFargo Wachovia? BBTB?

    • Cheap Bastard says:

      It’s not a PoS transaction, so I’m not sure why you would expect a PoS fee.

      Although I see what drives the question, because the card network must have a way of charging the card issuer. Normally there is a “transfer fee”, which is often the same for cash advances as it is for balance transfers. I suspect that’s where visa profits, and in the cases where there is a promo offering no transaction fees, the issuing bank is simply eating the fee, and choosing not to pass the fee on to the customer (because they’ll make that back in interest from most of the card holders most of whome don’t know the trick of loading a credit on their acct).

      Anyway, Cap One charged no fee of any kind when I was pulling out cash advances as a means for currency exchange. The whole transaction was effectively free.

  16. aua868s says:

    i just called up citibank and asked them to zero out my cash advance limit..they did….tried the same with chase..they said they cannot do it unless they reduce my overall credit limit as well….interesting

  17. aua868s says:

    have any of you had such an experience (not able to zero out cash advance limit without reducing the cretit limit)with Chase Bank? If BoA could do it, why not Chase? is it just that customer representative or the general policy of Chase? any thoughts?!?!

    • Cheap Bastard says:

      Never tried it.. however, it’s not hard to see why a bank would not offer a zero or extra low cash advance limit. It’s in the banks interest for consumers to dig deep, make impulse decisions with their money. They want you to bottom out at the casino, and take a cash advance out of desperation.

      It’s because banks are geared toward exploiting consumers in this manner that Obama signed to make credit limits firm. With Citibank for example, the credit limit is currently meaningless – consumers are free to spend well over the limit, and there’s no mechanism to stop them from getting in over their heads.

  18. Chris says:

    Is anyone still getting 0 interest or 0 fee purchase checks? If so with who?

  19. Good article, however, you need to be cautious about the recommendation on going to a grocery store and making a purchase and getting cash back. I work in the financial software industry and that type of transaction is usually treated as a 2 part transaction – the purchase and then the cash back. The cash back is treated like the cash advance and all the rules still apply. In most systems it is a relatively small change to do this, and with the regulation of fees for credit cards hitting, you can bet the card issuer is not going to overlook this one….

  20. justin says:

    There should be a company out there that would offer people an emergency cash advance through their credit card by processing a “purchace” for nothing and giving the customer either the cash (operating in a storefront) or a check or bankwire, less some small fee to cover their own profits and merchant costs of processing the cc payments. Then only the regular purchase rates would apply. Although, I only wonder how such a company could avoid chargebacks, and especially avoid fraudulent stolen credit card use. I suppose that would likely sink the whole concept.

  21. Andrew says:

    @Cheap Bastard, the Capital One cash advance strategy no longer works. I overpaid my balance by $200. My credit limit was $1K (all of it available as cash) and my positive balance was ($200). That, capital one owed $200 it to me at that point. I went to an ATM machine and got a cash advance of $150. The next day I was charged a $10 “front cash front end fee”, my balance become ($40), and my available credit was still $1K. So at least now they charge the cash advance fee no matter if you have overpaid them.

    • XXX says:

      Two separate things…

      Andrew: Did you check that your $10 transaction was during a period of waived transfer fees? If not, that might explain the fee.

      Jim and Steven: In order to get cash back with your purchase, your card must be a credit card that can also be used as a debit card (which is why after you swipe at the register, you must choose to process the transaction as either credit or debit). To my knowledge, these cards only exist only in the U.S. If you happen to be from a different country, I don’t think the advice of going to a grocery store and getting cash back with your small purchase is applicable, or for that matter, possible.

  22. Xavier says:

    Thanks for put this out! I just send money by western union and my credit card charged me the fee plus the interest. I didn’t expect this, but like you guys said live and learn!

  23. maurice says:

    I just cancelled my american airlines aadvantage card from citi which I’ve had for more that 5 years. I was completely flabbergasted to find out that if one takes a cash advance, citi charges you interest IMMEDIATELY not only on the cash advance amount, but also only your entire regular (non-cash-advance) balance! So this interest accrues on your regular purchases EVEN IF YOU PAY THE BALANCE IN FULL EVERY MONTH.

    For me this added up to between $100/month and $150/month each for several different months in which I had a cash advance even though I always paid off the balance in full every month. These interest changes were often as big as the whole value of the cash advances I made which were between $100 & $400. In my opinion this is a sneaky, despicable practice. FYI, I didn’t even know I was making cash advances at the time.

    The “cash advances” that I made were from using my card to make several relatively small western union transfers to a relative. Apparently these transaction are considered cash advances, which isn’t unreasonable in retrospect. What was unreasonable were the charges for interest for other purchases even though the entire credit card balance was paid off in full every month.

    Unfortunately I didn’t read my statements carefully for several months in a row, and when I figured out what was going on the citi representatives only offered to refund the last month’s interest charge. I then promptly cancelled the card.

  24. Mika says:

    im with usaa and if you have a usaa checking account transfer money over to the account from the credit card free of charge!! I do this all the time

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