How Does a Cash Withdrawal Work?

Many people don't know this, but credit cards can be used for cash withdrawals at an ATM. This feature can be very convenient if you need cash but you've left your debit card at home, your current account is empty, or perhaps you are abroad and want to avoid high non-sterling fees on your debit card. However, withdrawing cash with your credit card is not as straightforward as you would hope, in part due to the associated fees and high interest charges that your card may charge. In fact, getting cash with a credit card can be downright expensive on some credit cards. We'll talk through some of the pros/cons, as well as the fees, interest rates, and differences between withdrawing cash at home and abroad, so you know what to look out for when deciding if you should use your card for cash withdrawals.

Pros of Cash Withdrawals

  • Fast: You can get cash immediately from an ATM machine, with no approval process.
  • Can Payback ASAP: You can pay cash withdrawals back as soon as you can, in order to minimize accruing interests.
  • Abroad: Some cards offer beneficial terms for non-sterling cash withdrawals made when overseas.

Cons of Cash Withdrawals

  • High Cost: Cash withdrawals are usually expensive, with an upfront fee as well as daily compounding interest (at a rate that is usually higher than the purchase rate on a card).
  • Small Size: Cash withdrawals are typically capped, depending on your financial history and credit limit.

Table of Contents

What Are Cash Withdrawals?

A cash withdrawal on a credit card (i.e., a cash advance) is a way to get cash in hand if, for some reason, you are not able to use your debit card. Perhaps you've left your debit card at home or you don't have the funds available in your current account. In either case, withdrawing cash with a credit card can provide you with an alternative way to get money in hand. A cash advance is basically a short-term loan from your credit card in which you receive cash from an ATM or in-person at a bank. In either case, you use your credit card just like your debit card.

A credit card will have a "cash limit" just like the more well known "credit limit." Your cash limit may be a percentage of your credit limit or a fixed sterling amount. Those with a weaker credit limit may have a cash limit of £100; the cash limit on many cards is £300 or £500. In any case, when you've hit your cash limit, you must pay back the outstanding cash advances before you can withdraw cash again.

Cash Withdrawals At Home vs. Abroad

There are a number of credit cards marketed as travel cards, specifically for non-sterling purchases and cash withdrawals while abroad. As such, they may not charge a cash withdrawal fee and also may offer advantageous treatment of interest charges. In particular, some cards sport quite low cash interest rates and others do offer a grace period on interest charges, treating them like purchases. We've written an article, Best No-Foreign-Transaction-Fee Credit Cards, which discusses some of the top options in detail.

Cash Withdrawals: Credit Card vs Debit Card

Although the user experiences of withdrawing cash (from an ATM) using a credit card and a debit card are quite similar, behind the scenes these processes are quite different. When you use a debit card, the money is withdrawn free of charge, directly from your current account to provide you with cash. (Do note that some ATMs will charge a separate fee for use of the machine). In contrast, a cash advance will show up as a charge to your credit card, and will cost you both fees and higher interest charges. Unless you have an overdraft on your current account, efforts to take cash with a debit card from an empty current account will be declined. Cash withdrawals from a credit card, on the other hand, don't require you to have the funds available as a cash advance is essentially a loan. This is why credit card cash withdrawals generally cost more. That said, when used abroad some debit cards impose additional fees on non-sterling withdrawals. Be sure to understand the particular fees for your card before you use it abroad.

Average Cost of Cash Advances

While credit card withdrawals can be a quick and easy way to access cash, they're also one of the costliest ways to borrow money. This is because a cash withdrawal usually comes with a special fee, a higher interest rate than the purchases on your credit card, and no interest-free grace period (i.e., cash withdrawals start accruing interest immediately). This last point is often overlooked - cash withdrawals almost always start accumulating interest from the day of the withdrawal, even if you pay the full balance by the due date. This is different to purchases, which are usually given a grace period so that interest isn't charged on balances from new purchases that are paid by the next due date. This means that if you do withdraw cash on a credit card, try to go online and pay it back ASAP. Every day you wait will cost you more in interest charges.

Typical Cash Withdrawal FeeTypical Cash Interest Rate
3% (minimum £3)27.9% - 39.9% (or more)

As a result, taking out cash with a credit card is almost always more expensive than using a debit card, or even a personal loan. Let's look at an example. Say you take out £500 of cash using your credit card. You incur a £15 fee (3% of £500) and the transaction starts accruing interest immediately at 39.9%. Within fifty days, you will have accumulated over £27 in interest charges. Assuming you pay back the whole cash withdrawal at this point, the £500 advance will actually cost you £542. And if it takes you longer you take to pay back the cash withdrawal, the interest charges will continue to grow. (Additionally, there may be a fee charged by the ATM provider. You will see a message on the ATM screen alerting you to any such fees, before you complete your transaction.)

Cost of a Cash Withdrawal on a Credit Card

Cash WithdrawalWithdrawal FeeInterest Charges (50 days at 39.9%)Total Cost to You
£500£15£27£542

Using your credit card for sterling cash withdrawals is usually an expensive proposition, and should only be done when you are really in need. This isn't necessarily the case for non-sterling ATM withdrawals while abroad - some credit cards offer a very cost-effective set of terms for getting local currency when you're out of the country. Just be aware of the terms of your card before you decide to use your credit card at an ATM, anywhere in the world. Those looking for a travel card for cash withdrawals overseas can read our article on best no-foreign-transaction-fee cards.

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