Going abroad on holiday? Think twice about using your credit card to withdraw cash from an ATM—unless you're using a special travel credit card like the Barclays Rewards card. We'll explain how using a credit card for travel cash can add to your holiday expenses through fees and interest charges.
In total, typical credit card fees mean you'll pay 6% or more for withdrawing non-sterling cash on most credit cards.
Generally speaking, withdrawing foreign currency from your credit card on holiday will trigger two types of fees—a cash withdrawal fee and a foreign transaction fee. The cash withdrawal fee is typically around £3, with a £3 minimum per transaction. The Foreign transaction fee (which you may also pay on credit card purchases made in another currency, say at a restaurant or hotel) is usually around 3% of each transaction.
Higher Interest Rates
With few exceptions, credit cards charge a higher APR for cash transactions than purchases. A look at the four dozen credit credits we track revealed that average cash APRs are 6 percentage points higher than average purchase APRs. As a result you pay more to borrow from the credit card company when withdrawing cash. This is especially painful on credit building cards, where representative cash interest rates range from 29.9% to 49.9% APR.
No Grace Period
In general, there's no grace period for cash transactions on a credit card—which means you start paying interest immediately. For the purposes of interest calculations, cash is treated differently from purchases. If you pay off your purchases in full each month, you won't pay interest on those purchases. Cash transactions, on the other hand, will be charged interest from the date of withdrawal even if you pay off the full balance. This holds true for the majority of credit cards in the UK.
That said, a few special travel credit cards like the Barclays Rewards card DO offer a grace period on non-sterling transactions.
May Damage Your Credit Rating
Cash withdrawals on your credit card are recorded on your credit history. Depending on your situation, this may or may not be a problem for you. Typically it causes the most damage for cardholders who already have a weak credit score and/or who may be looking to borrow elsewhere. Potential future lenders may be alarmed by cash withdrawals if they suspect you're short of funds and are borrowing cash via a credit card.
For those trying to save money, the extra costs associated with withdrawing cash on most credit cards are best avoided. Instead, look into buying some travel money ahead of time through one of the many comparison websites available in the UK. Of course, if you expect to need a large amount of cash (e.g., for a longer trip) be careful of pre-purchasing and carrying more than would be covered under your travel insurance.