Citibank recently raised the fee it charges credit card users for cash advance transactions to 5% with a minimum fee of $10. This move is not surprising, as banks have been raising cash advance and balance transfer fees since the start of the Great Recession.
The 1 percentage point increase by Citibank puts its cash advance fees on the same footing as Discover and Chase, who also charge 5% cash advance fees. Bank of America charges a 4% fee. American Express and Capital One currently charge 3% fees which are the lowest among the major credit card companies.
In 2008, most major credit card companies charged 3% cash advance fees. By 2009, 4% fees became the norm. Now that Citibank has upped its fee to 5%, American Express and Capital One may follow suit. And there is still room to maneuver, as there is no government mandated ceiling on what banks can charge for either cash advances or balance transfers.
For the most part, consumers who use cash advances likely won’t learn of the increased fees until their bills arrive, though even this will require a little math. Unfortunately, 5% fees are the last thing consumers who make these transactions should be concerned about.
The main issue with cash advance transactions is the hefty interest rates they carry, which are often double standard purchase or balance transfer interest rates. The APR on these transactions typically range from the low 20 percent range up to 29.99%.
If twenty percent interest rates aren’t enough of a deterrent, the way credit card companies allocate monthly minimum payments should be, particularly for consumers who tend to pay only the minimum. Under the CARD Act, credit card companies can allocate minimum payments to whichever balance they choose. Thus, if you have a $500 balance at a 14% rate and $500 at a 29.99% rate, your credit card company will use your minimum payment to reduce the balance at the 14% rate while you continue to rack up interest at a 29.99% rate.
Ultimately, the increase in cash advance fees would be a positive if it deterred consumers from making these transactions. However, the increased fees will probably not be enough to discourage consumers whose desperate need for cash leads them to engage in these pricey transactions.