Definition of Cash-Advance Transaction Fees
Credit cards usually give you the option of taking out a cash advance on your line of credit. However, getting cash from your card may be expensive. Banks charge high interest rates and fees on cash advances. The access to money can be convenient, but you should only go this route when it's an emergency and you have no other access to cash.
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Identification
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A credit card cash advance is a withdrawal of cash from your credit card through an ATM or bank teller or by using a convenience check. Cash-advance fees are the fees charged by the bank for a cash advance.
Types
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Banks charge a fee for each cash-advance transaction. The fees can be flat, variable or a combination of the two. Banks may charge a flat fee of a minimum of $5 to no maximum per withdrawal. The fee is often a percentage --- usually between 3 and 5 percent. Banks may charge a flat fee on a portion of your withdrawal and a percentage on the remaining cash-advance amount.
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Function
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A cash advance doesn't need to take place at an ATM. If you don't have a personal identification number (PIN), a teller can process a withdrawal for you. You can also use the convenience checks that are often included with your monthly statement. By depositing the check into your checking account or cashing it, you make a cash advance on your credit line. Banks may allow you to transfer funds directly from your credit card into your checking account if you have both accounts at that bank.
Warning
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Transaction fees aren't the worst part of a cash advance: Cash-advance interest rates are almost always higher than the rate for purchases. The cash-advance rate is usually at or above 20 percent. At this rate, your cash advance costs you a pretty penny unless you pay it off right away. Interest starts accruing as soon as you take the money out of the ATM. Depending on the amount you've taken out, it may take from several years to several decades to pay off the cash advance at an annual percentage rate that's more than 20 percent if you pay only the minimum payment calculated by the bank.
Prevention/Solution
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A cash advance can be expensive. It's best not to take one out unless you have a real emergency. Read the fine print on the terms and conditions statement to know what you'll pay if you make a withdrawal. Banks usually apply payments to lower interest-rate charges first. The sooner you pay it off, the more money you save.
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References
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