Credit card cash advance fees: Majority of customers caught out by unknown high charges

26 July 2019 Research by credit experts TotallyMoney reveals that credit card owners are often caught out by high fees because of not knowing what classifies as a cash advance.

The annual Financial Awareness Survey 2019, carried out by OnePoll and commissioned by TotallyMoney asked a nationally representative sample of 2,000 UK adults about cash advance fees. It reports:

  • Almost nine in ten (87%) don’t know there’s a cash advance fee when paying an entry fee for a fantasy football team, which is classified as gambling
  • Six in seven (86%) have no idea a cash advance fee applies when purchasing a lottery ticket
  • More than three quarters (76%) don’t realise a deposit on a gambling website incurs a cash advance fee
  • More than six in ten (64%) don’t know that exchanging foreign currency triggers a cash advance fee
  • Nearly half (49%) aren’t aware that cash withdrawals from an ATM incur a fee

A cash advance fee is added to any cash transaction on a credit card. But, this isn’t limited to just cash withdrawals. As exposed by the survey results, what classifies as a cash transaction isn’t clear.

Most people don’t know that buying lottery tickets, entry fees for fantasy football, and exchanging foreign currency all trigger a cash advance fee.

A cash advance fee is charged as a percentage of the amount spent on the card, or a flat fee. For example, 3% or £3 per cash transaction — whichever is higher. For small purchases, the fee could be more than the item itself.

For example, a lottery ticket costing £2 could incur a £3 cash advance fee, meaning the fee is 150% more than the ticket itself. This is before any interest is added.

Interest charges will also usually apply from the moment the transaction occurs. Cash advance transactions are usually excluded from any 0% interest offers — leaving customers with even more to pay.

The research calls into question whether more should be done by lenders and retailers to ensure customers know which transactions incur a cash advance fee.

Alastair Douglas, CEO of credit experts TotallyMoney, said: “If customers aren’t aware of a cash advance fee, they may use their credit card in the same way as a debit card. In some instances, people might not realise a fee or interest is added until they check their statement.”

Douglas continues: “Being aware of the fee allows customers to make cost-effective decisions when making purchases.

“If you apply for a credit card, look at how much the cash advance fee is. You can check your eligibility for cards before applying with TotallyMoney’s credit card comparison tool.”

Here are a few of the most frequent transactions that trigger a cash advance fee.

ATM withdrawals

This cash transaction is the one that most people are aware of. Over half (51%) of people know withdrawing cash from an ATM with your credit card will involve a fee. Always try to avoid using your credit card to withdraw cash.

Any form of gambling

Playing in a casino, buying a lottery ticket, placing a bet, and entering a fantasy football team are all forms of gambling. As such, they all include a cash advance fee when bought with a credit card.

Paying with a credit card for gambling purchases results in an extra £545 million a year spent by customers on transaction fees and interest. Some organisations, including TotallyMoney, welcome a blanket ban on the use of credit cards for gambling.

Gift cards

This one can be a surprise for customers. Buying a gift card is considered a cash transaction. Be aware of this when purchasing a gift card and opt to pay with cash or debit card instead.

Currency exchange

Just over a third of people (36%) know exchanging currency could incur a cash advance fee. When exchanging money for a holiday, people may be keen to convert a lot of cash. But, this could result in a very high fee based on the percentage of the amount changed.

A cheaper option is to use a travel credit card with 0% fees on overseas transactions, or to find the best exchange rate and change money using your debit card.

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