How to beat money transfer fees – but is the trick worth it?

A MoneySaver recently wrote to us saying he’d done some credit card trickery to save some cash. In brief, he used a cash advance on a credit card and a balance transfer to save money over doing a money transfer, as balance transfer fees are lower.

So, I thought I’d look at his method and see if it could work for others, and what the downsides were (if any).

Here’s what he did:

• He had an instalment credit loan for some new windows on his home.
• He withdrew cash on a credit card to pay off the instalment credit.
• He then balance transferred the cash advance off his card onto a 40-month 0% credit card.

The MoneySaving comes by using a balance transfer card rather than a money transfer card, as fees to balance transfer are about half of what they are to do a money transfer – which would’ve been the simplest option to get the cash to pay off the instalment credit.

So, by the end of the process, he’d paid off his instalment credit, he’d paid off his cash advance, and had a debt on a card at 0% for 40 months, so he could work on paying that off over time.

How much could this actually save?

If we assume a debt of £1,000 on the windows, let’s work with that to see how much could be saved.

At the moment, the top 40-month 0% money transfer card has a fee of 3.94%. So, to transfer £1,000 would have cost £39.40 if he’d done a money transfer.

The cash advance itself doesn’t have a fee (if you use the right card), but you do start paying interest on cash advances from the moment you make them. Cash advance interest rates tend to be around 30%. So, let’s assume interest for one day on £1,000 as somewhere in the region of 80p.

Finally, there’s the balance transfer. The cheapest 40-month balance transfer card has a fee to transfer of 1.98%. So, on £1,000, that’s £19.80.

Now, if we add up the cash advance interest and the balance transfer and take this away from the money transfer fee, there’s a saving of £18.80. Obviously the more you need to transfer, the more this trick will save you.

What do I need to do this trick?

Well, first you’d need a specialist credit card for the cash advance. Most cards, as well as charging interest, will also charge a fee for a cash advance, so you need to find one that doesn’t. You also need to find one that doesn’t limit the amount you can withdraw on the card in one day (or at least allows you to withdraw the amount you need). Needless to say, there aren’t many of these around.

In fact, we’ve only really found the Santander Zero that does this – do let us know in the comments below if you’ve found others.

You also need large enough credit limits on the cash advance card and the balance transfer card to pay off the amount you need to. Plus, some cards will only let you take 50% of your credit limit out as cash – which could scupper the trick.

Lastly, you need to actually find somewhere that’ll give you the cash. A lot of ATMs have a maximum amount you can take out, meaning you may have to head into a bank and do an over-the-counter withdrawal.

So, doing the trick could mean you need to apply for two new credit cards (and be accepted for them).

What’s the credit score impact?

Withdrawing cash regularly is seen as a bad sign by lenders – it could be an indication you’re desperate for cash, and so can push your credit score down. But, what effect does one large withdrawal that’s immediately paid off have? Well, I didn’t know, so I asked James Jones of credit reference agency Experian about this, and about the impact on your credit score in general of doing this trick. He said:

“A one-off ATM withdrawal on a card is unlikely to affect your credit score” – though he did add that it could be a fraud monitoring issue.

Regarding taking out new credit cards, and paying off a loan or HP instalment credit, he added:

• Taking out a new credit card and managing it well (monthly payments on time and more than the minimum, and keeping the monthly balance low, <50% of the limit or better still, <25%) is likely to have a positive impact on scoring once the account reaches six months old.
• Successfully settling a credit account such as a loan or HP agreement can also be a positive for scores.

So, to sum up, doing this trick isn’t likely to negatively influence your credit score to a great extent. It’s likely the only small impact will be from the application searches made on the two credit cards, which will be made up for within six months assuming the accounts are managed well, and the debt on the balance transfer card doesn’t mean the card’s close to its limit.

Is it worth it?

Well, that all depends on how much time you have, how much you’re transferring, and whether you need to use your credit score in the near future for any important applications.

We’ve seen that you can save around £20 per £1,000 transferred doing this trick over a normal money transfer. On £1,000, it’s not a great saving, but if you did this trick with £3,000 or more, the savings do start to add up (though getting the cash advance becomes more complicated).

If you have an important mortgage or car loan coming up in the next few months, it’s best to look after your credit score before doing this, so it could be best to wait until that credit’s been granted before trying this.

And, finally, it’s a bit of a faff. So, it really just depends on you, and how far you want to take your MoneySaving.