What are considered cash-like transactions?

Cash-Like Transactions: What They Are and How They Impact Credit Card Costs

Cash-like transactions are transactions that are treated as cash advances on a credit card, despite not being actual cash withdrawals. These transactions often incur steep fees and higher interest rates compared to standard purchases, which can impact the overall cost of using a credit card.

Examples of cash-like transactions include:

• Convenience check deposits
• Peer-to-peer transfers
• Balance transfers
• Cash advances at ATMs

Why are Cash-Like Transactions Treated Differently?

Credit card companies classify cash-like transactions differently from standard purchases for several reasons:

• Increased Risk: Cash-like transactions pose a higher risk to credit card companies because they are not backed by a specific purchase. This means that cardholders may be more likely to default on these transactions.
• Higher Processing Costs: Cash-like transactions require additional processing steps, which increase the cost for credit card companies.

Consequences of Cash-Like Transactions

When a credit card holder makes a cash-like transaction, they may incur the following fees:

• Cash advance fee: A flat fee charged by the credit card company for the transaction.
• Higher interest rate: Cash-like transactions typically carry higher interest rates than standard purchases.

These fees and interest rates can add up quickly and result in significant costs over time. For example, if a credit card holder makes a $500 cash advance with a 5% cash advance fee and a 25% interest rate, they will be charged $25 in fees and an additional $62.50 in interest over the course of a year if they do not pay off the balance in full each month.

How to Avoid Cash-Like Transactions

To avoid the fees and interest charges associated with cash-like transactions, cardholders should:

• Use their credit card for standard purchases only.
• If possible, avoid using convenience checks or peer-to-peer transfers.
• Pay off their credit card balance in full each month to minimize interest charges.

By understanding what constitutes a cash-like transaction and its potential consequences, credit card holders can make informed choices about how they use their cards and minimize their overall costs.