Travel cash on a card could cost you dear

Many transactions on credit cards are treated as ‘cash advances’ which are charged at a higher rate of interest than other purchases – and the amount spent also begins accruing interest from the date of the transaction.

Cash advances such as any form of money transfer, buying postal orders or any forms of gambling are all charged to consumers’ credit cards in the same way as an ATM cash withdrawal.

As a result, anyone using a credit card for these transactions may face higher APRs – typically 23 to 28 per cent, according to the analysis by MoneySupermarket.com.

“Most consumers are aware that taking cash from an ATM on a credit card can be expensive, however, many may not understand where else their provider will treat purchases as a ‘cash advance’ and they could end up making a pricey mistake,” said head of banking at MoneySupermarket Kevin Mountford.

“A rule of thumb is that any transaction which buys you cash or the equivalent of cash will be charged at the higher rate of interest and the transaction won’t benefit from the interest-free period you get on standard purchases.

“Credit card users may also not be aware that any kind of money transfer or travel money purchase made on a credit card is charged in the same way as a cash withdrawal meaning holidaymakers could be losing out on some serious spending money.

“Avoiding unnecessary charges is essential as they soon rack up and can end up being a very costly mistake.

“If you do need to use a card for cash, opt for one that charges a lower rate of interest, or pay off the transaction as soon as possible and don’t necessarily wait for your credit card bill to drop on your doormat.”

Consumers should make the most of their choices, according to the UK Cards Association.

Spokesperson Neil Aitken said: “Cards are hugely convenient and offer consumers unique protections from loss and fraud that cash can’t match. When it comes to buying foreign currency, card companies have worked hard with government to agree changes which make any charges easier to understand and it is worth remembering that it is completely free to get foreign currency on a debit card.

“Information on the rates for cash advances is shown in the summary box of every credit card statement and there are lots of different cards to choose from.

“This is why it is important to check your summary box before you use your credit card and if necessary shop around for a card that is best suited for the way you want to use it.”

MoneySupermarket advises consumers to consider opting for a card which offers a low rate of interest across the board, giving the example of The Co-operative Bank which offers a low rate Fixed Rate credit card charging 9.9 per cent APR on all transaction types, including cash advances.

Definitions of cash transactions are broadly similar, with Capital One (Aspire World) applying the charge for foreign currency, travellers’ cheques, money orders, electronic money transfer, paying to open a deposit account and gambling.

RBS (Platinum) and Natwest (Platinum) defined a cash transaction as from an ATM, gambling, foreign currency, money transfers or cash from a branch.

MoneySupermarket also found that Halifax (All in One) charged transactions at 27.95 per cent APR while Lloyds TSB (platinum), RBS (Platinum) and Natwest (Platinum) charged 24.90 per cent to 27.95 per cent, with Virgin Credit Card, Barclaycard (Platinum), MBNA (Credit Card) charging 27.90 per cent.

The Citizen’s Advice Bureau says that consumers can find credit card charges difficult to understand. In a statement, it said: “Credit card charges can be confusing. People aren’t always aware of high charges they can face when using credit cards in this way, and there’s a risk that they could find themselves in debt as a result.

“It’s really important that credit card providers are very clear with customers about exactly what they will have to pay for certain services.

“People should read the small print about the various charges that can apply before using a credit card to take out cash, buy travel money or postal orders, or arrange a money transfer.”

Mr Mountford added: “With all financial products, it is really important to check terms and conditions applied, and credit card users should be extra careful about how and where they use their card.”