Martin Lewis has shared some guidance after a fan of his was surprised to be hit by bank charges. In a recent episode of his BBC podcast, the financial expert answered many questions from his loyal followers. He shared some financial tips around taxes, pensions and bank rules on the show.
One question came in from someone who was surprised to be charged interest on their credit cards despite paying them both off in full each month. Mr Lewis responded initially to say it « could be a number of reasons ».
He said: « I think it’s not likely to be because you have one of the very, very few credit cards that does make you pay interest even if you clear in full. The vast majority don’t. »
He went on to pose a specific question that might uncover the reason for the suprise charges, asking: « Have you withdrawn cash? » He explained: « Cash withdrawals on most cards, even if you pay off in full, you have to pay interest for the month.
« So the in full rule is, if you clear a card in full with your spending, the there is no interest to be paid at all. » However he warned that « even if you miss it by a penny », you’ll get a bill for some interest to pay.
The expert gave a real world example: « If you have £1,000 on a credit card, you pay off £1,000, there’s no interest if it’s all from spending. If you have £1,000 on a credit card, you pay off £9,999.99, you don’t just pay interest on the penny, you still pay interest on the entire £1,000. That’s why my rule is ‘in full’, not nearly in full, not close to in full, it’s in full. »
Mr Lewis went on to say the exception here is when you take out cash: « But that rule tends not to work on cash withdrawals. So if you ever take cash out on a credit card, then you will pay the interest on what you’ve taken out in cash across the month. So my guess without knowing more details, is it’s probably a cash withdrawal. »
As well as being charged interest, it’s worth noting that many banks and building societies will charge you additional fees to take out cash using a credit card. For example, guidance on the Nationwide states that when taking out cash using one of their credit cards, you may have to pay a fee of 2.5 percent of £3 of the amount, whichever is more, as well as your standard interest rate on the amount.
Information on the Lloyds Bank website warns bank customers that taking out cash in this way is « an expensive way to borrow » and recommended « for emergencies only ». The guidance explains: « Every time you make a cash transaction, you will likely pay a fee.
« This fee can have a fixed minimum amount and may be up to 5 percent of the money you withdraw, depending on your credit card and provider. »
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