Important things to know before getting a cash advance on your credit card

Information verified correct on September 28th, 2016
cash advance at ATM machine

Thinking about using your credit card for a cash advance? Consider some of these fees and factors before you make a decision

A credit card cash advance is one of the most expensive ways to access credit. It offers very little or no benefit compared to its downsides: interest immediately accrues at a pretty high rate, you sometimes pay extra fees, and there are no frequent flyer earning perks. What’s more is that credit card cash advances are not limited to ATM withdrawals, and in some cases you could be making a cash advance without even realising it. Learn when some of these common transactions occur, and how you can avoid them.

What is considered a cash advance?

Most people think a cash advance happens when you use your credit card to withdraw money from an ATM. While that is the most common form a cash advance takes, some other transactions also constitute a cash advance, including when you pay a bill using a non-BPAY registered service, when you buy travellers cheques or foreign currency with your credit card, and when you use your credit card at a casino. Even if you’re not “buying cash” and you’re only using your credit card to pay for a meal at the casino, it could be considered a cash advance.

Another fact that may shock you: if you get a balance transfer credit card, you can be charged the cash advance rate on any debt that remains after your promotional interest rate period ends. To find out more about what is considered a cash transaction, read your credit card product disclosure statement or see our page about what’s defined as a cash advance.

Cash advances vs. card purchases

Basically, you can use your credit card in two ways: to make a purchase or to get a cash advance. These two transaction types accrue interest at different rates, with cash advances usually attracting the higher interest rate.

Purchase transactions essentially refer to paying for products and services, including all shopping, meals, tickets, and things like buying petrol or booking a hotel. Cash transactions, on the other hand, involve accessing cash equivalents, either via ATM withdrawals or cash outs, sending or transferring money out of your credit card account in any form, buying foreign currency or paying bills. The only exception to this rule is when you use BPAY, which is uniquely classified as a purchase instead of a cash advance.

Card purchaseCash advance
Does not attract a fee except when abroadUsually attracts a cash advance fee, both abroad and locally
Lower interest rateHigh interest rate
Enjoys interest free daysAccrues interest immediately on the day
Earns rewards pointsDoes not earn reward points
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What should I consider when making a cash advance?

Here are the reasons a cash advance is the most expensive way to use your credit card:

    • Attracts the highest rate of interest. It’s common for a cash advance transaction to accrue interest at about 20% p.a.
    • Comes with a fee. A cash advance fee generally applies to each cash advance transaction. This can be as much as 3% of the transaction amount or a flat fee of as high as $5.
    • No interest free days. Cash advance transactions are not eligible for interest free days and they incur interest charges straightaway.
    • Must be paid off first. When you make a credit card repayment, your cash advance transactions will be repaid first before purchases and interest-free promotions, unless otherwise stated in the product’s terms and conditions.
    • Can also attract ATM fees. Credit card cash advances sometimes also attract ATM fees. This happens when you make withdrawals from another bank’s ATM, especially when you’re overseas.

How much could a cash advance cost me?

To put the cost of cash advances into perspective, let’s say that at some point in an extended South American holiday, you were stranded in Mexico without any money and all you had on you was your Virgin Australia Velocity Flyer Card. You withdrew $1,000 and forgot all about it until you returned home three weeks later. At the card’s current cash advance interest rate of 20.99% p.a., you were charged $12.08 interest on those 21 days, plus $5 for the overseas cash advance transaction, totalling $17.08.

That might not seem like very much, but imagine that you’d also loaded $5,000 on your brand new travel card without realising that this constituted a cash transaction. You didn’t realise that you were being charged any interest until the following month when you finally returned from your long South American trip. Then you realised you had been charged 20.99% p.a. interest for 62 days, which amounted to $178.27. This scenario shows how quickly the costs can add up.

Compare cash advance interest credit cards

Rates last updated September 28th, 2016
Cash advance rate (p.a.) Purchase rate (p.a.) Balance transfer rate (p.a.) Annual fee
ME Bank frank Credit Card
Enjoy a low and consistent interest rate on purchases and cash advances, combined with no annual fee.
11.99% p.a. 11.99% p.a. $0 p.a. Go to site More info
Newcastle Permanent Value+ Credit Card
Enjoy a competitive annual fee and interest rates on purchases, cash advances, and balance transfers.
11.49% p.a. 11.49% p.a. $49 p.a. Go to site More info

On top of high interest accrual and the cash advance fees already mentioned, here are some more key points that should deter you from making a cash advance.

  •  The interest compounds. Shock and horror: you can be charged interest on your interest. With interest compounding on existing interest charges, your credit card balance can get out of hand very quickly if you don’t pay off that cash advance balance.
  •  Minimum repayments are simply not enough. Unfortunately, just making the minimum repayment can mean that you will never pay off your credit card debt. Make sure you pay as much as you can off down your credit card balance whenever as much and as often as possible. Cash advances are expensive, and can get even more expensive if you let them fester in your account.

What are my alternatives to a cash advance?

Promotional cash advance rates are few and far between. To avoid hefty interest charges, cash advance fees and the possibility of an out-of-control credit card balance, you might wish to consider packing these alternatives:

A prepaid credit card essentially works like a debit card because you’ve already preloaded it with cash. As long as your account balance is positive, you will not incur any interest charges or cash advance fees when making a withdrawal with your prepaid credit card. But ATM fees may however still apply if you use a foreign ATM or any ATM outside other than your bank’s network.

Similarly, your debit card cannot attract interest fees because by virtue of the fact that you’re only spending your own money only money that is yours. As long as you use only your own bank’s or a partner bank’s ATM, you won’t have to pay ATM fees either.

A variety of personal loans and lines of credit may be available to you depending on your income, assets and credit rating. These loans offer an average interest rate of 13%-—14% which is substantially more competitive than the average cash advance interest rate. If you’re in a hurry, some lenders may be able to approve and release funds to you on the same or next day.

While a cash advance can sometimes be your final and only solution, there are always cheaper ways to access cash if you’re not in a hurry. If an emergency leaves you no choice but to push that big red cash advance button, do pay it off as soon as you possibly can.

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2 Responses to Important things to know before getting a cash advance on your credit card

  1. Default Gravatar
    phil | November 20, 2015

    Today i received advice from ANZ visa that as of 27/2/16 there is a redefinition of cash advances to include payment of utility bills. Which if any credit cards do not define such payments as cash advances?

    • Staff
      Ally | November 20, 2015

      Hi Phil,

      Thanks for your inquiry.

      Kindly note that finder.com.au is an online comparison service and does not represent any product issuer.

      To get a more precise answer to your question, it would be best to get in touch with your preferred bank for direct assistance as their terms and conditions vary from one another.

      Cheers,
      Ally

Credit Cards Comparison

Rates last updated September 28th, 2016
Purchase rate (p.a.) Balance transfer rate (p.a.) Annual fee
Virgin Australia Velocity Flyer Card - Balance Transfer Offer
Enjoy a 0% p.a. balance transfer offer for 18 months and also earn 2 bonus Velocity Points in the first 3 months on everyday spend.
20.74% p.a. 0% p.a. for 18 months $64 p.a. annual fee for the first year ($129 p.a. thereafter) Go to site More info
ME Bank frank Credit Card
Enjoy a low and consistent interest rate on purchases and cash advances, combined with no annual fee.
11.99% p.a. $0 p.a. Go to site More info
St.George Vertigo Visa
Introductory offer of 0% p.a. for 18 months on balance transfers and 1% p.a. for 12 months on purchases, plus a low annual fee.
1% p.a. for 12 months (reverts to 13.24% p.a.) 0% p.a. for 18 months $55 p.a. Go to site More info
HSBC Platinum Credit Card
Receive a full annual fee refund and save $149 if you meet the $6,000 spend requirement. Enjoy a balance transfer offer and platinum card benefits such as complimentary insurances and concierge services.
19.99% p.a. 0% p.a. for 15 months $149 p.a. Go to site More info

* The credit card offers compared on this page are chosen from a range of credit cards CreditCardFinder.com.au has access to track details from and is not representative of all the products available in the market. Products are displayed in no particular order or ranking. The use of terms 'Best' and 'Top' are not product ratings and are subject to our disclaimer. You should consider seeking independent financial advice and consider your own personal financial circumstances when comparing cards.

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