Friday May 9, 04:04 PM
Cash And Credit Cards Don't Mix
By Cliff D'Arcy
When it comes to withdrawing cash, there are huge differences between credit cards and debit cards. If you fail to understand these differences, then you could lose a small fortune!
When you use your debit card to withdraw cash, almost all
cash withdrawals (from ATMs and 'over the counter') will be fee-free. This doesn't apply if you use your debit card in 'convenience' cash machines and those which lie outside of your bank's cash-machine network. On these occasions, you can expect to pay a withdrawal fee of, say, £2 for gaining access to your current account.
On the other hand, if you use a credit card to withdraw cash, then you're in for a shock, thanks to these four traps:
1. If you pay off your monthly credit-card bill in full, then you can enjoy up to 59 days of interest-free credit. However, this interest-free period does not apply to cash withdrawals, on which interest starts accruing immediately.
2. The interest rates applied to cash withdrawals don't match those for purchases. In fact, they are massively higher, with some cash interest rates exceeding 28% APR. With the Bank of England's base rate at just 5%, these rates are a royal rip-off.
3. As well as higher interest, you can expect to pay a cash-withdrawal fee of up to 3% of the amount withdrawn, with a minimum fee of £3.
4. Lastly, when you come to pay off your credit-card bill, your repayments will reduce your cheapest debt first. In other words, interest will continue to accrue on cash withdrawals until your entire balance (including interest) is repaid in full. This is known as a 'negative payment hierarchy'.
By the way, the above charges also apply to cash withdrawals overseas (plus an additional 'currency-conversion fee', which adds a further 2.75% to the cost of using foreign cash machines). They often apply to the credit-card cheques which card issuers send to customers. So, before using a credit-card cheque, check its terms and conditions in order to make sure that cash interest rates do not apply.
In exclusive research for The Fool, I checked 112 widely held and well-known credit cards in order to reveal the sinners and winners when it comes to withdrawing cash. Here's what I found:
Cash interest rates of under 20% APR
Card issuer Cash interest
rate (% APR) Egg Money MasterCard 7.90 HSBC Premier MasterCard
The Co-operative Bank Clear Visa 11.90 Barclaycard Student MasterCard 14.90 First Trust Bank (NI) Visa Option 3 14.95 Barclaycard Simplicity Visa 15.80 First Trust Bank (NI) Visa Option 2 16.95 Coutts & Co Classic Visa 17.46 Northern Bank (NI) MasterCard (NYSE: MA - news) /Visa 17.88 First Trust Bank (NI) Visa Option 1
John Lewis and Waitrose MasterCard 18.90 Sainsbury (LSE: SBRY.L - news) 's Bank MasterCard 19.95 The gold medal in this section goes to the Egg Money MasterCard, which charges a typical rate of just 7.90% APR for cash withdrawals. This is a lower rate than almost any credit card charges, even for purchases, making it our Best Buy in this category. Next come the Don't Buys:
Cash interest rates of 20% to 25% APR
Card issuer Cash interest
rate (% APR) Virgin Money Atlantic Black/White Amex 20.90 Bank of Ireland (Dublin: DD7D.IR - news) (UK) MasterCard/Moneyback 20.94 First Direct Visa
HSBC Bank MasterCard
Marks & Spencer Money MasterCard 21.90 Britannia BS Classic Intro Visa 21.95 Ulster Bank (NI) MasterCard/Visa 22.34 Abbey MasterCard/Visa
Nationwide BS Classic Visa 22.90 AA MasterCard/Online MasterCard
Amazon.co.uk MasterCard
Intelligent Finance Flat Rate MasterCard
Norwich & Peterborough Visa 22.95 PayPal MasterCard 22.96 Morrisons Credit Card 23.60 Smile Classic/Current Account Visa
Yorkshire BS Classic Visa 23.90 Bank of Scotland (all MasterCards)
Halifax (all MasterCards) 23.95 Cheshire BS MasterCard
Egg Visa
SkyCard MasterCard
Virgin Money MasterCard 24.90 MINT MasterCard
NatWest (all MasterCards/Visa)
Post Office Classic MasterCard
Royal Bank of Scotland (LSE: 91ID.L - news) (all MasterCards/Visa)
Tesco Personal Finance MasterCard/Visa 24.94 Cash interest rates of over 25% APR
Card issuer Cash interest
rate (% APR) Abbey Zero MasterCard 25.90 Leeds BS MasterCard 26.80 Alliance & Leicester (all MasterCards/Visa)
Bank of Cyprus Visa
Barclaycard Graduate, Initial, OnePulse MasterCard/Visa
BMW Card Amex
British Airways (LSE: BAY.L - news) (all Amex)
Lloyds TSB (all Amex/MasterCards/Visa)
MBNA (all Amex/MasterCards)
Shell MasterCard
SonyCard Amex/MasterCard/Visa
The Nectar Amex 27.90 Bank of Scotland Classic MasterCard
Halifax Classic MasterCard 27.95 bmibaby MasterCard
easyJet MasterCard 28.01 ASDA MasterCard
House of Fraser DualCard MasterCard 28.39 Mothercare MasterCard 28.40 Debenhams MasterCard 29.95 Capital One Bank Classic Visa 34.94 aqua MasterCard 39.95 Vanquis Bank Visa 46.19 As you can see, three credit cards have the cheek to charge over 30% APR for withdrawing cash. What a swindle! Now for the fees linked to cash withdrawals:
Cash-withdrawal fees under 2.50%
Card issuer Withdrawal
fee (%) Minimum
fee (£) Abbey Zero MasterCard
Egg Money MasterCard
The Co-operative Bank Clear Visa 0 0 Bank of Ireland (UK) MasterCards
First Trust Bank (NI) Visa 1.50 3 John Lewis and Waitrose MasterCard 1.75 2.50 Coutts & Co Classic Visa 2.00 1.50 Northern Bank (NI) MasterCard/Visa
Post Office Classic MasterCard
Ulster Bank (NI) MasterCard/Visa 2.00 2.00 House of Fraser DualCard MasterCard
Lloyds TSB Student MasterCard
Mothercare MasterCard
PayPal MasterCard
Virgin Money Atlantic Black/White Amex 2.00 2.50 Barclaycard Graduate, Initial, OnePulse,
Simplicity & Student MasterCard/Visa
First Direct Visa
HSBC MasterCard/Premier MasterCard
Lloyds TSB Amex, MasterCards & Visa
Marks & Spencer Money MasterCard
MINT MasterCard
Morrisons Credit Card
Vanquis Bank Visa 2.50 2.50 Cash-withdrawal fees of 2.50%+
Card issuer Withdrawal
fee (%) Minimum
fee (£) Britannia BS Classic Intro Visa
Abbey MasterCard/Visa
Nationwide BS Classic Visa
Norwich & Peterborough Visa
Smile Current Account/Classic Visa
Yorkshire BS Classic Visa 2.50 3.00 SkyCard MasterCard 2.95 2.95 AA MasterCard/Online MasterCard
Alliance & Leicester (all MasterCards/Visa)
Amazon.co.uk MasterCard
aqua MasterCard
ASDA MasterCard
Bank of Cyprus Visa
Bank of Scotland (all MasterCards)
BMW Card Amex
British Airways (all Amex)
Capital One Bank Classic Visa
Cheshire BS MasterCard
Debenhams MasterCard
Egg Visa
Halifax (all MasterCards)
Intelligent Finance Flat Rate MasterCard
Leeds BS MasterCard
MBNA (all MasterCards)
NatWest (all MasterCards/Visa)
Royal Bank of Scotland (all MasterCards/Visa)
Sainsbury's Bank MasterCard
SonyCard Amex, M'Card & Visa
Tesco Personal Finance MasterCard/Visa
The Nectar Amex
Virgin Money MasterCard 3.00 3.00 Shell MasterCard
bmibaby MasterCard
easyJet MasterCard 3.00 5.00 As you can see, the final three credit cards charge a 3% cash-withdrawal fee, with a minimum fee of a fiver. Bluntly, these suck like an industrial vacuum cleaner, and should never be used to withdraw cash except in the direst emergencies!
Of course, my overall winner is the Egg Money MasterCard, which charges a cracking 7.9% typical APR for cash withdrawals, yet charges no withdrawal fees. No other credit card comes close for cash withdrawals.
Finally, if you are paying high rates of interest on existing credit-card debts, then kill your interest bill by using 0% balance transfers. Likewise, for interest-free purchases lasting up to a year, start using a 0% on purchases credit card. Why pay interest when you don't have to?
More: Find cracking credit cards via the Fool | Reclaim Your Bank And Card Charges | The Best Credit Cards To Use Abroad
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