Sunday 26 March 2017

Credit card holders pay dearly to withdraw their funds

Charlie Weston

Charlie Weston

MOST credit card providers are charging interest immediately on cash withdrawals. This does not apply to purchases made on a credit card, where consumers get 56 days interest-free before they are charged.

The interest for cash advances is usually twice that charged for purchases.

A survey by the Irish Independent has found that cards issues by MBNA, National Irish Bank, Ulster Bank, Tesco, Debenhams and EBS Building Society all start charging interest as soon as cash is advanced on a card.

This is applied daily.

In contrast, cards issued by AIB, Bank of Ireland and Permanent TSB give consumers 56 days interest free when cash is advanced on a card, according to the National Consumer Agency's itsyourmoney.ie website.

Financial advisers said some cash-strapped consumers were using their credit cards to pay mortgages and other debts.

Mistake

This would prove to be hugely expensive if they were withdrawing cash on a card that does not offer an interest-free period, adviser Bob Quinn of myrecession.ie said.

"Withdrawing cash from your credit card account is the biggest financial mistake you can make. It will come back to bite you in the backside," Mr Quinn warned.

Simon Moynihan, of price comparison site Bonkers.ie, pointed out that the rates charged on cash advances on credit cards are the biggest earners for card companies.

"All the card issuers charge more in interest for cash advances than they do for purchases, even though it is not costing them very much more than advancing money for a purchase," he explained.

The only difference between a purchase and a cash withdrawal on a credit card was that card companies were missing out on a retailer fee of up to 3pc for a cash advance.

Despite this, most card issuers charged double the interest rate for a cash advance compared with a purchase.

Some card providers charge a transaction fee, usually about 1.5pc, each time consumers make a cash withdrawal on a credit card.

Another catch is that if consumers make purchases and a cash withdrawal, but only make a partial repayment, with some cards the partial payment will go on the purchase first.

Only when the amount owed on the purchases is cleared will the repayments be used to clear the more expensive cash withdrawal.

Irish Independent

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