Credit card cash withdrawal charges are on the up

As the holiday season kicks off, Egg customers should use their credit cards with caution as the minimum cash withdrawal fee will increase from £3 (or 3% whichever is greater) to £5 (or 3% whichever is greater) from the 28th May.

The move by Egg is designed to deter customers from making small cash withdrawals as this is often a clear sign of financial difficulty. Smile has also made a similar move by increasing the minimum fee from 2.5% to 3% with effect from the 1st July.

In stark contrast, Egg is one of the few providers that has maintained one of the lowest interest rates applied to cash withdrawals for the past two years. At 22.9%, this is one of the most competitive rates on offer amongst major credit card providers.

Cash withdrawals on credit cards are subject to two charges:

The fee applied just to the withdrawal which is anything up to 3% or £5 (whichever is greater).

The interest rate which is applied to the debt on the credit card from the day the withdrawal is made.

In the last two years, average cash withdrawal rates have increase from 23.65% to 26.7% p.a.

Research from uSwitch.com has shown that 7.3 million (16%) credit card customers use this facility around five times a year, making average withdrawals of just under £100 every time. These consumers make a total of 38 million withdrawals every year, racking up £161 million in interest charges alone. Previously, these withdrawals would cost an Egg customer £3 each, this will now increase to £5.00 - totalling £25 a year in withdrawal fees alone.

On average the per annum rate applied to cash withdrawals on credit cards has increased by 3.05% in the last two years, from 23.65% to 26.7% today. Across the industry, charges for this facility vary and in the last year alone, some providers have increased this rate by as much as 4%. Two providers, Hoare and Co and the Co-operative Bank, do not actually charge a withdrawal fee on some of their cards in the UK.

Louise Bond, personal finance manager at uSwitch.com comments: "The rationale for Egg's change is reasonable. However, we strongly advise customers not to use this facility on any credit card unless they are really desperate for the cash. Interest is applied to credit card cash withdrawals from the day they are made and the APR is generally far higher than that applied to purchases."