Credit Card Customers Incur £214 Million of Cash Withdrawal Charges

Despite record low interest rates, the cost of withdrawing cash on credit cards is £21 million more today than in 2010

  • Individual cost: One in five credit card holders make cash withdrawals on their cards each year. Making an average of seven withdrawals a year for £90 each, it costs at least £214 million in fees and interest charges[1]
  • Fees rising: The average cash withdrawal fee of £3.34 has increased by 53p since 2010, costing people £21 million more a year. In addition, consumers are hit with an inflated interest rate of around 24.49% on the transaction from the day the cash is withdrawn, rather than the standard 56 interest free days<[2]
  • Oblivious: Consumer understanding of these charges is low, one in four (25%) are totally oblivious to the fact it costs more than a debit card withdrawal or a standard credit card purchase (31%)[1]
  • Robbing Peter to pay Paul: Six million consumers withdraw cash every year, 40% simply run short of money each month, 21% grab the first card in their wallet and 1.2 million do so to pay other credit card bills
  • Desperate times: As recent energy price hikes hit the doormat, over 1.1 million people use the cash to pay utility bills such as gas (16%), electricity (13%) and general household bills (18%) – 15% use it for daily expenses

Despite record low interest rates reaching their fifth anniversary in recent weeks, new research released today from Totallymoney.com, the credit comparison website, reveals that the cost of withdrawing cash on a credit card has actually increased over the past four years. In fact, the average cash withdrawal fee has risen by almost 20% from £2.81 to £3.34[2] which means this year’s cash withdrawal borrowing of £4 billion will cost consumers £214 billion in fees and interest charges, the same amount in 2010 would cost £193 million, £21 million less[1]. This is a big boost to provider’s profits from a fee hike which most consumers would never be aware of.
Overall, 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.[1] 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, completely losing the standard 56 day interest free period. This is on average 24.49%, over a third higher than the average purchase APR which is 18%.

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.

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.

Who does it?

Amongst credit card holders, it seems men are slightly more prone to cash withdrawals than women (23% vs. 18%) and unsurprisingly, more often carried out by 18-24 years olds (35%) than any other age group. Across the regions the West Midlands has the highest proportion or cash withdrawers (27%) followed by London (25%).
Will Becker, CEO and co-founder of TotallyMoney.com comments: “It’s really disappointing that the average cost of a credit card cash withdrawal has actually gone up over the past four years, despite record low interest rates boosting lenders’ margins. In fact, these charges were already far too high. In light of the lack of consumer awareness around the costs incurred, it’s hard to avoid the conclusion that cash withdrawal fees are being used as “stealth charges” by card issuers. Unfortunately, when providers make fee changes like this, it’s very difficult for people to spot. Charges such as these are rarely a consideration when choosing a card.
“Using a credit card to withdraw cash from an ATM is best avoided, if possible, as it’s an expensive way of accessing cash. If people have to use their card in this way, they need to check the terms and conditions and choose a provider that offers preferable fees – these rates will also be displayed on monthly statements. The only positive perspective is that a credit card cash withdrawal is usually a much cheaper option than slipping into an unauthorised overdraft or turning to a payday loan.”
If you do have to use your credit card to make cash withdrawals, the Halifax Clarity Card is one of the best deals around. The card provides fee free cash withdrawals and a competitive APR of just 12.9% on purchases and cash advances, less than half the industry average. This applies to both UK and overseas withdrawals.

ENDS

About TotallyMoney.com:

TotallyMoney.com, launched in 2007, is the UK’s leading credit-focussed comparison website which sets out to make it simpler for consumers to compare credit cards, loans and mortgages. With a revolutionary approach to credit comparison, TotallyMoney.com uses exceptional comparison tools to empower people to make better financial choices.

Notes to Editors:

1.Research carried out with OnePoll across 2,000 credit card holders on the 4th March 2013. Research shows that:

  1. 19.55% of consumers use their credit cards to withdraw cash.
  2. 19.55% of 30.3 million credit card holders (UK Plastics 2013) = 5,923,650.
  3. On average, these consumers make 7.17 withdrawals a year for £92.89 totalling 42,472,570 transactions.
  4. Total annual amount withdrawn per customer: 7.17 x £92.89 = £666.02
  5. Total amount withdrawn: 5,923,650 x £666.02 = £3,945,277,073
  6. Average cash withdrawal fee is £3.34 (see 2) or 3.27%, whichever is greater. Total charges for the average withdrawal based on 30 days of interest = £5.03 over 30 days or £36.07 a year.
  7. Total fees and charges for cash withdrawals in the UK: £36.07 x 5,923,650 = £213,637,029 a year.
  8. Increase in cash withdrawal fee: Total cash withdrawal charges in 2010 = £192,825,470.
  9. £213,637,029 – £192,825,470 = £20,811,560

2.All fees are charges are taken from TotallyMoney.com’s industry analysis based on Defaqto data, February 2014.

  1. Average cash withdrawal fee is £3.34 (see 2) or 3.27%, whichever is greater (Feb 2014).
  2. Average cash withdrawal fee is £2.81 (see 2) or 2.72%, whichever is greater (Dec 2010). £3.34 – £2.81 = £0.53.
  3. Average cash advance APR is 24.49% (Feb 2014) or 25.25% (Dec 2010).

3.This doesn’t include Virgin cards which represents four out of 51 MBNA credit cards. These cards offer a cash withdrawal fee of 2% or £3.

 

For more information, please contact James McCaffrey

About TotallyMoney

TotallyMoney has been championing fairer and better consumer credit since 2007 by helping customers make smart borrowing decisions. We won Best Free Credit Report Provider in the 2018 Moneynet Personal Finance Awards and, in under 12 months, our Free Credit Report has already put more than 500,000 customers in control of their credit data.

Plus, we pioneered soft searching and eligibility scoring to reduce customers’ risk of being rejected for credit. Our services are designed to simplify personal finance, helping customers improve their credit rating and find the best products to meet their needs. To date, our platform powers the likes of Confused.com, Noddle, and ClearScore to name but a few.