Categories: CFO

Why We Should Never Withdraw Cash with a Credit Card?

Why we should Never Withdraw Cash with a Credit Card

Withdrawing cash using a credit card is one of the costliest financial mistakes you can make! why you should avoid it at all costs: Why You Should Never Withdraw Cash with a Credit Card. Key Points on Credit Card Cash Withdrawals

  1. High Cash Withdrawal Charges

    • Banks charge 2.5% to 3% of the withdrawn amount, with a minimum charge of ₹250–₹500.
    • Even if you withdraw a small amount, you still pay the minimum fee.
    • Fees and Charges:
      • Cash Advance Fee: Typically around 2.5% of the withdrawal amount (min ₹250-₹500).
      • Finance Charges: Monthly interest ranging from 2.95% to 3.5%, translating to annual rates of 40.2% to 46.78%.
      • No Grace Period: Interest accrues from the date of withdrawal
  1. Immediate Interest Without Grace Period

    • Unlike normal credit card transactions, cash withdrawals attract interest from Day 1—there’s no interest-free period.
    • Interest rates range from 36% to 48% per annum (around 3% to 4% per month).

Example:

    • ICICI Bank charges 3.40% per month (i.e., 40.8% annually) on cash withdrawals!
    • If you withdraw ₹10,000 and repay after 30 days, you might end up paying ₹10,400 or more!
  1. Reasons Not to Withdraw Cash Using a Credit Card

    • High Costs Unlike card purchases, cash withdrawals incur immediate interest and withdrawal fees. Example: R2.20 per R100 withdrawal at Nedbank ATMs, and higher fees at non-Nedbank ATMs.
    • No Budget Facility Unlike purchases that can be converted into structured repayments (6 months – 3 years), ATM withdrawals require immediate repayment.
    • No Chargeback Protection : Credit card purchases offer dispute protection (chargebacks), allowing refunds for faulty goods. With cash withdrawals, you lose this protection.
    • No Reward Points : ATM withdrawals don’t earn loyalty points, reducing the benefits of using a credit card.
    • Security Risk : Carrying cash increases theft risks, making electronic transactions safer.

Pros of Withdraw Cash with a Credit Card: Cash Advance Feature Allows us to withdraw cash from ATMs using a credit card but comes with high fees and interest rates.

    • Instant cash availability.
    • No approval or documentation needed.
    • No spending restrictions.

Cons of Withdraw Cash with a Credit Card:

    • High charges.
    • No reward points.
    • Immediate interest accrual.
  1. No Reward Points & Increased Utilization Ratio

    • Cash withdrawals don’t earn rewards or cashback.
    • A high credit utilization ratio can hurt your credit score, making future loans costlier.
  1. Possible Credit Limit Reduction :

    Frequent cash withdrawals can signal financial distress to banks, leading to a credit limit reduction or even account closure. Ways to Minimize Fees:

    • Avoid cash withdrawals unless absolutely necessary.
    • Repay the amount as soon as possible.
    • Withdraw only the minimum required.
  1. Alternatives to Avoid Credit Card Cash Withdrawals

If you’re in a financial crunch, it’s often wiser to explore alternatives like a personal loan (which has lower interest rates), borrowing from a trusted friend or family member, or even a salary advance.

    • Use Debit Cards – Withdraw cash from your bank account.
    • Emergency Loan or Overdraft – Lower interest rates than credit card cash withdrawals.
    • UPI or Digital Payments – Instead of cash, try digital transactions. Never use your credit card at an ATM unless it’s an absolute emergency! The costs far outweigh the benefits.
    • Swipe your credit card directly for payments or use it online, but avoid treating it like a cash facility.
Tags: Credit Card
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Rajput Jain & Associates is a Chartered Accountants firm, with it's headquarter situated at New Delhi (the capital of India). The firm has been set up by a group of young, enthusiastic, highly skilled and motivated professionals who have taken experience from top consulting firms and are extensively experienced in their chosen fields has providing a wide array of Accounting, Auditing, Taxation, Assurance and Business advisory services to various clients and their stakeholders. Rajput jain & Associates, a professional firm, offers its clients a full range of services, To serve better and to bring bucket of services under one roof, the firm has merged with it various Chartered Accountancy firms pioneer in diversified fields. We have associates all over India in big cities. All our offices are well equipped with latest technological support with updated reference materials. We have a large team of professionals other than our Core Team members to meet the requirements of our prospective clients including the existing ones. However, considering our commitment towards high quality services to our clients, our team keeps on growing with more and more associates having strong professional background with good exposure in the related areas of responsibility.

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