Financial Consumer Agency of Canada
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Credit Cards and You: Service Fees on Credit Card Transactions
Cash-advance fees
You have to pay a fee, called a "cash-advance fee", whenever you withdraw cash with your credit card from an automatic banking machine (ABM) at your bank branch, using your personal identification number (PIN), or when you use "convenience cheques". (For more information, see Convenience cheques.)
A cash advance on your credit card can be a convenient, instant way of getting cash. However, you should be aware that interest is charged immediately on the money you withdraw. Since cash advances can be an expensive way to borrow money, you should always look into other options that are available to you, such as a personal loan or a line of credit.
Likewise, if you withdraw money at an ABM that does not belong to your credit card issuer, you may have to pay a "convenience fee" that the operators of this ABM charge.
A cash-advance fee can be:
- a fixed amount (usually from $1.25 to $5)
- a percentage of the amount of cash you withdraw (usually from one to four percent), or
- a fixed amount, as well as a percentage.
There is often a minimum and a maximum cash-advance fee of between $1.25 and $10. Be aware that some cards have no maximum fee.
Pay attention to how often you use cash advances and check the fees and interest that your credit card issuer charges, since these vary from one issuer to another. Before taking a cash advance, make sure you read all of the terms and conditions of your credit card agreement carefully.
Try to pay off as much of your balance as you can, as early as possible. You don't need to wait to receive your statement before you start making payments on a cash advance.
The following examples show a number of different ways in which credit card issuers apply cash-advance fees.
For illustration purposes, let's say that Mr. Smith has a credit card with an annual interest rate of 19.5 percent. He pays the entire balance owing in full 27 days after the date of the first cash advance. Mr. Smith withdraws the same amount of money, on different dates, using three different withdrawal methods. (Note: In all of these cases, interest is charged from the date of the cash advance.)
Example 1: Fixed-rate fee (Options A, B and C)
Mr. Smith's credit card issuer charges a fixed-rate cash-advance fee of $2.50.
Option A: Withdrawing cash on the 1st day of the month
Mr. Smith withdraws $1,000 from an ABM with his credit card, on the first day of the month. This costs him the $2.50 fixed-rate cash-advance fee, plus interest on the cash advance. He pays interest for the entire period, from the date he withdraws the money until the date he pays his bill.
| Option A | |
|---|---|
| Cash advanced | $1,000.00 |
| Interest charged | $14.42 |
| Fees | $2.50 |
| Total | $1,016.92 |
Option B: Withdrawing cash on the 1st and 15th days of the month
Mr. Smith withdraws $500 twice during the month. He has to pay a higher cash-advance fee (a total of $5 for the two cash-advance transactions), but the interest charges are lower because the interest is calculated from the first day of the month for the first cash-advance transaction and from the fifteenth day of the month for the second cash-advance transaction, until the bill is paid. In other words, interest is not calculated from the first day of the month for both transactions.
| Option B | |
|---|---|
| Cash advanced | $1,000.00 |
| Interest charged | $10.68 |
| Fees | $5.00 |
| Total | $1,015.68 |
Option C: Withdrawing cash on the 1st, 8th, 15th and 22nd days of the month
Mr. Smith withdraws $250 every week, for four weeks in a row. He has to pay a higher cash-advance fee (a total of $10 for the four separate cash-advance transactions), but the interest is lower, because he only pays interest from the date of the cash advances, which are spread out throughout the month.
| Option C | |
|---|---|
| Cash advanced | $1,000.00 |
| Interest charged | $8.82 |
| Fees | $10.00 |
| Total | $1,018.82 |
In this example, Option B is the most cost-effective method of obtaining a cash advance.
Example 2: Percentage fee (Options A, B and C)
Mr. Smith's credit card issuer charges a one percent fee on cash advances. His credit card has a minimum fee of $5, but no maximum fee.
Option A: Withdrawing cash on the 1st day of the month
Mr. Smith withdraws $1,000 with his credit card at an ABM. The cash advance costs him $10 (one percent of $1,000), plus interest, which starts immediately, from the date of the cash advance until he pays off his credit card balance.
| Option A | |
|---|---|
| Cash advanced | $1,000.00 |
| Interest charged | $14.42 |
| Fees | $10.00 |
| Total | $1,024.42 |
Option B: Withdrawing cash on the 1st and 15th days of the month
Mr. Smith withdraws $500 twice during the month. He pays the same cash-advance fee at the end of the month (a total of $10), but the interest charges are lower, because he only has to pay interest from the date of the cash advances — one at the beginning of the month and one halfway through the month — until he pays off his credit card balance.
| Option B | |
|---|---|
| Cash advanced | $1,000.00 |
| Interest charged | $10.68 |
| Fees | $10.00 |
| Total | $1,020.68 |
Option C: Withdrawing cash on the 1st, 8th, 15th and 22nd days of the month
Mr. Smith withdraws $250 each week, for four weeks in a row. He pays a higher cash-advance fee at the end of the month (a total of $20), because of the $5 minimum cash-advance fee, but the interest charges are lower, because his cash advances are spread out throughout the month. (Note: although one percent of the cash advance of $250 equals $2.50, Mr. Smith will be charged a minimum fee of $5 because of the way his card works.)
| Option C | |
|---|---|
| Cash advanced | $1,000.00 |
| Interest charged | $8.82 |
| Fees | $20.00 |
| Total | $1,028.82 |
In this example, the second option is the most cost-effective method of obtaining a cash advance.
As the preceding examples show, it is important to understand how your credit card issuer charges cash-advance fees. Depending on the fee for your particular credit card and the amount of money you withdraw, if you spread your cash advances out over a period of time, you may save money.
It is also important to look at the interest rate you are paying on cash advances. In the examples shown, splitting the cash advance into two separate withdrawals was the most cost-effective option, because of the fee structure and interest rate on Mr. Smith's credit card. The fees and interest rate can vary from one credit card to another, as well as from one card issuer to another.
Balance transfers
A balance transfer is the transfer of the money you owe from one credit card to another. It is also considered to be a cash advance, and you might have to pay cash-advance fees, as well as interest charges, on this type of transaction.
Using a credit card for bill payments
Some credit card issuers may also consider bill payments (for example, cell phone, cable and utility bills) that are made with a credit card at an ABM, at a bank branch, by phone or by Internet, as a cash advance, and therefore charge you a cash-advance fee. To avoid paying cash-advance fees when you pay these bills with your credit card, you can set up pre-authorized payments on your card. Since this type of bill payment is usually considered to be a purchase rather than a cash advance, you will benefit from an interest-free period. However, not all companies that bill customers allow you to do this.
Convenience cheques
Convenience cheques that you receive in the mail — which are also called credit card cheques — are usually treated in the same way as cash advances. Credit card issuers often advertise these types of cheques as an easy way to pay your bills and get some extra cash. While these types of cheques may seem convenient, they can actually be very expensive, because you are charged interest immediately. If you receive these kinds of cheques, as part of a special offer, make sure that you read and understand all of the terms and conditions that apply to them.
To find out about other types of transactions that are usually treated the same way as cash advances, see Fees for purchases of wire transfers, money orders, bets, lottery tickets and casino gaming chips.
