What is a Cash Advance Fee?

What is a Cash Advance Fee?

When you take out a cash advance from your credit card, your credit card institution will charge you a cash advance fee.

Usually, it’s either in the form of a flat fee or a percentage of the amount of the cash advance.

A cash advance is when you withdraw actual cash from your credit card, either from an ATM or from a bank teller.

The amount taken out gets added to your credit card balance, and you can’t take anything over your existing credit limit – some cards even have separate, lower limits for cash advances.

Why You Should Avoid Credit Card Cash Advances

While being able to withdraw cash from your credit card is convenient, it’s often much more expensive than other options.

Credit card cash advances have higher interest rates than most other loan options, and interest begins to accrue as of the date you take the money out.

The cash advance fee could be anywhere between 3% to 5% of the amount withdrawn or a flat fee of $5 to $10.

On top of this cash advance fee, interest is charged, usually at a rate of 21% to 24% annually.

Let’s say you have a credit card with a cash advance fee of 3% and annual cash advance interest rate of 23%.

If you take out $500 as a cash advance, upon withdrawal, you will be charged the cash advance fee of $15.

On top of that, you will be charged a daily interest rate of 0.063% (23% divided by 365 days).

That amounts to approximately $9.50 of interest each month.

While it may not seem like a lot, paying $115 annually to borrow $500 is quite expensive.

Before taking out a cash advance, make sure to read the terms and conditions of your credit card to make sure you’re fully educated on the fees relating to your cash advance.

You can also find this information on your credit card statements.

Before taking out a cash advance, make sure to read the terms and conditions of your credit card to make sure you’re fully educated on the fees relating to your cash advance.

You can also find this information on your credit card statements.

Don’t Forget!

Each cash advance will trigger a cash advance fee.

Alternatives to Cash Advances

Unless really necessary, you should try to avoid cash advances at all costs.

If you have some important bills coming up and need the money, here are some alternatives to cash advances.

  • Lines of credit usually have much lower interest rates than cash advances – they could be as low as 3% to 5%. Consider applying for a line of credit instead of taking out a cash advance. Just be careful to not fall into the trap of thinking you have more money to spend – a line of credit is still debt.
  • If you have an emergency fund, it may be a better option to dip into it rather than taking out a cash advance. While you may be wary of making a dent in your emergency fund, you will ultimately be saving money by using money you already have rather than paying hefty interest charges.
  • While it may seem uncomfortable, borrowing money from family or close friends could be a better alternative than taking out a cash advance. If you know you’ll be able to pay them back within a few weeks, you’re better off saving the money spent on cash advance fees and interest.
  • Borrow the minimum amount that you need and pay it off as quickly as possible. By minimizing the cash advance payment and the amount of time it’s outstanding, you’ll manage to save a bit on interest and cash advance fees.
Canadian who just took cash advance

Frequently Asked Questions

  • How do I avoid cash advance fees?
  • How much is a cash advance fee?

Tara Al-Khudairi is a freelance personal finance writer who has worked in the financial services industry since 2017. She graduated from McMaster University with a degree in Finance and is pursuing her CFA.

She has worked at a major Canadian financial institution in various client-facing advisory roles, starting as a bank teller and working up to a Client Services Associate within the Asset Management division. She specializes in simplifying concepts of personal finance for people of various financial backgrounds.

When she’s not examining the markets looking for the next SHOP.TO, she’s either practicing yoga, planning her next vacation, or has her nose buried deep in a book.