Withdrawing Cash Is Costing UK Consumers £214 Million a Year

uk-credit-card-cash-withdrawals

Despite record low interest rates continuing into their fifth anniversary in recent weeks, new research released by Totallymoney.com, reveals that the cost of withdrawing cash on a credit card has actually increased over the past four years.

From 2010 to 2014 the average cash withdrawal fee has risen by almost 20% from £2.81 to £3.34, which means this year’s cash withdrawal borrowing of £4 billion will cost consumers £214 million in fees and interest charges. The same amount in 2010 would have cost £193 million, £21 million less. This is a big boost to provider’s profits from a fee hike which most consumers would never be aware of.

Overall, just fewer than six million people use the cash withdrawal facility on their credit cards each year. In total, these consumers withdraw £666 each on average, costing £5 for every transaction or £36 a year if they pay the balance off in full after 30 days.

These costs are high because consumers have to pay an average of £3.34 (or 3.27% whichever is greater) every time they make a withdrawal. This is coupled with an inflated ‘cash advance’ interest rate which the consumer pays from the moment they withdraw the cash from the ATM. This is on average 24.49%, over a third higher than the average purchase APR which is 18%.

Click on the thumbnail on the right to see a visual breakdown of the UK’s addiction to cash >>

Why do it?

For 40% of consumers it’s a cash flow issue and they are forced to withdraw cash on their credit cards as they run out of money before pay day. One in five is robbing Peter to pay Paul as they withdraw cash from one credit card to pay the bill for another. A further 16% use this cash to pay gas bills and 13% for electricity. Paying energy bills with cash is often the most expensive form of payment but for some they may not have any other option – particularly as the latest wave of price hikes hit the doormat.

Males in particular use their cards in expensive ways with 23% of them taking out cash on their cards as opposed to just 18% of women who do the same. Males are similarly more likely to use withdrawn cash to pay off other credit card bills (25% as opposed to only 16% of women) as well as being more prone to just picking the first card from their wallet that they see, showing no concern for the cost of doing so (27% as opposed to only 17% of women). This may be part-way explained by the fact that men also seem more ignorant about the cost of withdrawing cash on card (10% of them thinking it cheaper than withdrawing on a debit card with only 6% of women thinking the same).

Oblivious

21% of people withdrawing cash on their credit card just grab the first card they find in their wallet when they approach the cash point and don’t think about the cost, a further 18% just need the cash and it’s the only option they have. Overall, consumer understanding is poor around the true cost of withdrawing cash on a credit card with one in four people totally unaware that it costs more than a standard debit card withdrawal. Almost a third (31%) are not aware that it costs more than a standard credit card purchase.

Young people in the 18-24 age group in particular seem to know less about the cost of withdrawing cash on credit cards than anyone else. A whopping 14% of them for example thinking that withdrawing cash on your credit card is cheaper than withdrawing on debit. Obviously the opposite of this is true. 18-24 year old’s also take out way more cash than any other age group, with 35% of them opting to use their cards at cash machines as opposed to, say, only 13% in the 55+ age group.

Where is it all being done?

Across the regions the West Midlands has the highest proportion or cash withdrawers (27%) followed by London (25%). Beyond this there also seems to be a notable north/south divide when it comes to the ways that people are using their plastic.

One region spending well above the odds on withdrawing cash is the North East. Topping many negative categories they top the tables for:

  • People using cash withdrawals to keep themselves in the black at the end of the month (56% of all withdrawers).
  • People who just use the first card they grab at cash machines with no concern for the cost (38%).
  • People who use them to pay off other credit card bills (31%).
  • People who think that withdrawing cash on credit card is cheaper than doing the same on a debit card (12%).

Whereas in the south the South West in particular performs very well, with respondents showing high levels of card awareness. When they do use their cards they also use them in a more cost-efficient way than their northern counterparts.