Co-authors: James Hurwood, TJ Ryan
Australians have a love affair with credit cards – evidenced by the more than $30 billion we currently owe on them. In August 2016, though, we seemed to also have an even greater love affair than usual with credit card cash advances. Statistics from the Reserve Bank show that we made more than 2.2 million (2,213,000) cash advances using our credit cards in August, which is above the usual monthly average of 2,114,000.
In fact, the number of cash advances made on credit cards in March 2016 was the highest monthly figure for around 5 years. While August’s figures are not record-breaking, this is one of the higher number of cash advances in a month that we’ve seen recently. But interestingly, and perhaps somewhat worryingly, we regularly saw a much larger number of cash advances each month before the GFC.
What is a cash advance?
A cash advance is when you use your credit card to withdraw cash, whether you do that at an ATM, in a branch, or at the checkout of the supermarket. Cash advances usually incur a cash advance fee, which may be a flat fee or a percentage fee based on the amount of cash you withdraw. Interest is charged on cash advances from the time you make the withdrawal, and the interest rate applying to cash advances is usually much higher than the interest rate for making purchases.
What is a cash advance interest rate?
The credit card cash advance interest rate on your card is the credit card interest rate charged when you use your credit card to access cash directly or a cash equivalent transaction. Examples of these types of transactions include:
- Withdrawing cash directly from an ATM or over the counter at a bank branch
- The purchase of travellers’ cheques
- Gambling transactions such as purchasing chips at a casino or with a betting agency
- BPAY transactions where the biller does not accept regular payments from a credit card (your issuer will warn you if this type of transaction will occur)
Credit card cash advances accrue interest at a higher rate than interest on purchases, sometimes charging twice the interest, but that may not always be the case. For more on difference types of credit card interest rates, have a look at this article.
Interest rates for cash advances vary widely, as you can see from the rates currently on the Canstar database:
|Cash Advance Interest Rate: Non-Rewards Credit Cards|
|8.99% p.a.||17.71% p.a.||24.50% p.a.|
Source: www.canstar.com.au Rates current as at 26 October 2016.
It is important to be aware that in addition to higher interest rates, credit card cash advances will attract a fee in addition to the cash advance amount. These fees vary but are usually the greatest of 3% or $5. A cash withdrawal of $1000 would in this case attract a fee of $30 added to your credit card statement.
When does the cash advance rate start being charged?
Unlike purchases, where you may have a certain number of interest-free days before interest is charged on a transaction, credit card cash advances begin accruing interest immediately from the time the advance is made until it is paid back. However, cash advances do not affect the interest free days you get on your card purchases, provided the closing balance is paid in full by the due date on your statement.
What are the costs of a credit card cash advance?
Certainly, an instant credit card cash advance is a way of getting hold of money in an emergency or when other accounts are empty but the practice is fraught with danger, particularly if you are making a habit of it.
Why? Because interest on credit card cash advances is up to 10% higher than your usual card rate, plus that hefty interest is charged straight away, almost as soon as you finish at the ATM. There are no interest-free days for you to repay the cash advance, so you can really clock up some debt if you are not careful. This is especially dangerous if you’re paying the current maximum interest rate of 24.50% p.a. for cash advances.
But wait, there’s more! As well as paying the higher interest rate on a cash advance, consumers are also charged fees. Cash advances in Australia can tend to charge an access fee of around 3% or $5, whichever is greater.
It’s normal for overseas cash advances to attract fees ranging from $4 to $5 as well as a fee paid to the owner of the ATM used, as we saw in our 2016 star ratings of travel credit cards and debit cards.
You can find out more on the costs of cash advances here.
Why were credit card cash advances higher in March 2016?
It’s impossible to be certain, but March this year did coincide with beautiful weather and the Easter holidays…
Also quite interestingly, whilst the number of cash advances was greater, the overall value of those cash advances wasn’t much greater than usual, which indicates that people were taking out smaller amounts per transaction. But if you’re going to be charged $5 per transaction, that’s a really expensive way to get a small amount of cash out!
If you don’t fancy the cash advance rate on your current credit card, why not start the search for a new one? We can help you out with that, with our credit card comparison tool for different types of credit cards:
See the comparison table below for a snapshot of the current low rate credit cards available on the market, sorted by purchase rate (lowest to highest) and based on a $2,000 monthly spend. This table also features links direct to the providers’ website. You can also try the tool for yourself, inputting your specific requirements here.