What is a money transfer credit card?
A money transfer card allows you to transfer money from your credit card to your bank account. It's effectively the same as a cash loan.
It can be useful if you're paying a high rate of interest on your bank overdraft and you want to clear it.
You can also use a money transfer credit card to add a cash sum to your current account for a short term loan. It's likely to be cheaper than a formal credit loan.
How do money transfer credit cards work?
A credit card money transfer card, moves money from your credit card into your bank account. You'll then be in debt on your money transfer card.
But because many money transfer cards don't charge any interest on the debt, it’s often cheaper than having an overdraft. The Financial Conduct Authority (FCA) found that the overdraft fees charged for unarranged overdrafts were often 10 times as high as fees for payday loans. So the FCA introduced new legistlation to monitor this, forcing banks to be transparent with their fees. Despite this, you’ll still be charged interest.
That’s why money transfer credit cards can be useful if you need a cash loan for a short time.
Can I transfer money from a credit card to a bank account?
Yes, you can transfer money from a credit card to a bank account. But your money transfer card application must be approved first.
One advantage is that by transferring a sum of money to your current account, you can avoid paying any interest on your debt.
Not all credit cards are designed to let you switch money from your credit card to your current account. Those that are, will charge you a small fee.
The transfer fee is usually around 1% to 3% of the money transferred. You need to factor this into your calculations when working out whether it’s worth making the transfer.
Compare the cost of the transfer fee with the cost of continuing to pay the charges on your overdraft. Although overdraft fees are no longer allowed, banks can charge a fixed interest rate. Some previously introduced rates of up to 40%, which the FCA looked into.
So, moving money from your money transfer credit card into your bank account may help you sort out your finances in the short term.
Remember to think about how you're going to pay off the debt on your money transfer credit card. For example, you could set up a monthly payment from your current account to gradually clear the debt.
The best money transfer cards have 0% interest periods lasting over 2 years. If you pay back your balance in full during this interest free period, you will not pay any interest.
What's the difference between money transfer and balance transfer cards?
Money transfer cards and balance transfer cards are similar because they both involve shifting debt from one place to another.
With a balance transfer card, you can move debt from a card charging you interest, to one with lower or no interest. It can be a good way to pay off existing credit card debt or to consolidate your debts.
A money transfer card lets you transfer money (credit) from the card to your bank account, where it’s considered cash. Many people use these cards to pay off an overdraft.
It’s like releasing a cash sum to clear debts or provide a quick cash boost.
You could use a money transfer card to get access to cash or pay off an expensive loan
A money transfer card can be useful to help you get access to cash if you need to make a cash purchase.
Or you could use the money from your money transfer card as an interest free loan to pay off existing debts.
The 0% interest period on money transfer credit cards means you could avoid paying interest on your debt all together. To get this benefit, you must pay back the full balance before the interest free period expires.
Some of the best money transfer credit cards have an interest free period of over 2 years.
How to transfer money from credit card to bank account
To transfer money from a credit card to your bank account, you need a card designed for that purpose. You can apply online, over the phone or in branch.
To be sure you get the best one for you, it’s good practice to compare money transfer cards first. You can do this using comparison tables like the one above.
After your application has been approved, the card provider will send you the physical card in the post. This may take around 5 working days.
Once you have your card, you can transfer credit into your bank account. When the cash arrives in your current account you can spend it in the same way as you normally would with your debit card or by withdrawing cash. You can do this without incurring any fees or charge (as long as it is an ATM that provides free cash withdrawals).
This is a much better option than trying to withdraw cash using a credit card. Technically, you can take out money using your credit card. But it's best avoided because it shows up in your credit file and damages your credit score.
How can I find the best money transfer card?
The right money transfer credit card deal for you is one that best fits your very personal financial needs.
If it’s going to take a long time to sort out your finances, compare the money transfer credit cards with the longest interest free periods.
To cut the cost of your debt, consider a money transfer credit card with the lowest transfer fee. You can see the different options in our comparison tables.
Things to consider before applying for a money transfer credit card
Money transfer cards usually trade off the length of the interest free period against the transfer fee. The longer the 0% period, the bigger the transfer fee and vice versa.
The best money transfer credit card for you ultimately depends on how long you think it will take you to pay off the debt. If you think you can pay off the debt in a brief time, you could get a card with a short interest free period and a low transfer fee.
Spreading out your repayments over a longer period means you can pay less each month. In that case, a longer interest period might be your best option, even if the transfer fee is higher.
How can I use a money transfer card to save money?
A money transfer card can help you save money that you otherwise would have paid in interest on current debt.
For exampleYou have a debt of £1,500. The annual percentage rate (APR)on your debt is 20%. This adds £25 a month to your debt (£300 a year).
You decide to use a money transfer fee to pay off the debt. The offer on the card is 0% on money transfers for 24 months.
The cost to transfer money into your bank account is 4%, which is £60. Although your debt is now £1,560, you will not have to pay any interest on it for 24 months, potentially saving you £100s.
Remember you must meet your minimum monthly repayments or risk losing your 0% interest offer.
Are money transfer credit cards the best way to borrow cash?
Credit card transfers can be an effective way of borrowing small amounts of money over a short term without paying interest. But they may not be the best way for you to borrow cash.
Typically, you need a good credit rating to get one. If you have a bad rating and apply anyway, you risk being rejected by the card provider. A rejection will damage your score even further.
To avoid paying interest on the credit card debt, you need to be sure you can at least meet the minimum repayments.
If you don't repay the card before the interest free period expires, you’ll be charged interest on the remaining debt. This is the card's APR, or annual percentage rate.