Cash And Credit Cards Don't Mix
9 May 2008
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 As well as higher interest, you can expect to pay a cash-withdrawal fee of up to 3% of the amount withdrawn, with a minimum fee of £3.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.
News Source : http://www.fool.co.uk/ |
