Here’s what you need to know
Cash is still needed for many purposes, although digital payment methods have grown rapidly in recent years.
When we run out of money towards the end of the month or need it in an emergency, the most likely response is to use the immediate payment services or use the credit card at a ATM for withdrawing money. This may be the most practical way to instantly remedy a cash crunch, but it’s not a wise move.
Credit cards can be used to withdraw cash the same way we swipe a debit card at ATMs. However, in the case of a credit card, certain fees are involved in obtaining the cash advance. Interest rates on credit card cash withdrawals are high and it is not a financially prudent option.
Here are the charges or fees you have to pay when you swipe your credit card to withdraw cash.
Cash advance fees
When you withdraw money from an ATM with your credit card, a fee is charged for each withdrawal. These fees typically range from 2.5% to 3% of the amount withdrawn and added to your next credit card bill.
Interest is also charged on the amount you withdraw with the credit card. The interest rate on these cash withdrawals is usually high and can reach 3.5% per month. Also, credit card issuers don’t offer any interest-free period for cash withdrawals like they do for regular credit card transactions. This means that interest charges are applied when you make a cash advance from your credit card.
Withdrawing money with a credit card does not directly affect your credit score. However, due to its high fees, you may not pay the minimum due and your credit card usage amount will also increase. This will negatively affect your credit score.
ATM maintenance fees
Most banks allow up to 5 free ATM transactions using credit or debit cards. Once you reach this limit, interchange or ATM maintenance fees are charged.
Benefits and offers
When you swipe your credit card to pay at restaurants and stores, banks may offer you discounts or special offers. But, when you use your credit card to withdraw cash, you may not be able to enjoy these benefits.
It is advisable to withdraw money from credit cards only when it is urgent and unavoidable.