Credit card customers who use their plastic to withdraw money face paying through the nose for the pleasure, as providers “cash in” on the practice.
According to research, the average APR charged to people who use their credit card to withdraw cash from an ATM has risen from 23% last June to 25% today. In addition, 65% of credit cards charge more than the average APR for cash withdrawals, with the most expensive charging 46.19%.
MoneyExpert.com, the financial comparison website which carried out the research, also found that 159 of the 246 cards on the market charge cash withdrawal APRs of over 26.2%.
The increase in these APRs is a reflection of the ongoing squeeze on credit card firms, which have seen their profits diminished by regulatory clampdowns as well as an increase in people who regularly switch deals.
So far this year, credit card providers have reacted to this pressure by increasing interest rates, shedding customers that they perceive as posing a high risk, and making borrowing criteria tougher. In addition, they have introduced sneaky tactics such as hiking balance transfer costs.
Sean Gardner, director of MoneyExpert.com, says the credit crunch means more people are turning to credit cards to meet everyday costs. As a result, more are using their plastic to borrow cash, with millions of pounds withdrawn from ATMs each month.
In response, credit card providers have put up rates, effectively cashing in on the trend.
Gardner says: “Before you put your credit card in an ATM for cash, remember that it is one of the most expensive forms of borrowing around. Unless it's absolutely necessary you should try to find another way to make a payment.”
Cash withdrawals attract interest from day one, so you still face being hit with interest even if you pay off your balance in full when you get your statement.
Which credit cards are the cheapest for cash withdrawals?:
|Card provider||Card name||Cash % p.a||Cash fee||Cash minimum charge||Other info|
|The Co-operative||Bank Gold Visa||5.12%||2.5%||£3||£120 p.a fee|
|Bank Clear Visa||12.9%||n/a||n/a|
|HSBC||Premier MasterCard||11.9%||2.5%||£3||Premier customers|
|Citi||Ultima MasterCard||16.365%||3%||£5||Min income|
|Source: Monetfacts 22/07/08|