What Is a Cash Advance Fee?

What is a cash advance fee?

A cash advance fee is a charge your credit card issuer applies when you use the card to obtain cash rather than to make a purchase. The most common example is withdrawing cash from an ATM with a credit card, but cash advances also include things like using convenience checks tied to your card, buying certain cash-like items, and sometimes transactions your issuer classifies as cash equivalents. The fee is separate from and on top of any interest, and it makes cash advances one of the costliest ways to access money. Because of this, financial guidance generally warns against credit card cash advances except in a genuine emergency, and it is a trap some travelers fall into when they need cash abroad.

How much is a cash advance fee?

The cash advance fee itself is typically around 3 to 5 percent of the amount withdrawn, with a minimum charge often around 10 dollars, so even a small withdrawal costs at least that minimum. On top of the issuer's fee, if you withdraw from an ATM you may also pay the ATM operator's own fee, and abroad, foreign transaction fees can apply too, stacking additional costs. But the fee is only part of the expense: the bigger cost is usually the interest. Cash advances start accruing interest immediately at a high cash advance annual percentage rate, which is often higher than your purchase rate. Altogether, a cash advance can cost far more than the amount of cash you actually receive if you do not repay it quickly.

Why are cash advances so expensive?

Cash advances are costly because of a combination of charges that hit at once. First, there is the upfront cash advance fee of a few percent. Second, and most importantly, cash advances have no grace period: while regular purchases give you until the statement due date to pay before interest starts, interest on a cash advance begins accruing the moment you take the money out, and at a higher rate than purchases. Third, payments are often applied to lower-interest balances first, so the expensive cash advance balance can linger and keep accruing interest. Add possible ATM and foreign fees, and the true cost climbs quickly. This design is why cash advances are considered a last resort rather than a normal way to get cash.

How do you avoid cash advance fees?

The simplest way is to use a debit card, not a credit card, to withdraw cash from ATMs, since debit withdrawals from your own bank account do not incur cash advance fees or immediate interest, though foreign ATM fees may still apply abroad. Plan ahead so you have enough cash or a fee-free debit card for travel, and use a no-foreign-fee card for purchases so you rarely need cash. Be aware that some transactions can be coded as cash advances without obvious warning, such as buying foreign currency, money orders, or gambling chips, so check how a purchase will be classified. If you truly must take a credit card cash advance in an emergency, repay it as fast as possible to limit the interest.