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Suppose a credit card has a credit/negative balance of $100.
If a $100 cash advance is charged to the card, which fees apply?
max(%, fixed amount))Is there a standard way that this is handled or does the answer vary by issuer?
If the bank has a cash advance fee, that will be charged. It's usually between 2-4%, and applies even when a card offers a period of no interest.
If 2%, you need to withdraw $98.04 to total $100. And you should see no interest charged.
This will have slight variations between issuers. Typically a cash advance is not treated as a normal charge (which, depending on how aggressive the bank is, might throw away most of what you read in your cardmember agreement related to charges and payments, because you're not dealing with a charge, you're dealing with a cash loan). Cash advances will generally begin to accrue interest as soon as the cash is drawn. Most of the time cash advances even have a different, usually higher, interest rate.
It's really not advisable to use a cash advance ever. You'd really need to be between a rock and a hard place to make the fees and interest worth it; it's an extremely expensive way to borrow money.
You will definitely be charged a cash advance fee if your card has one (it most certainly does). If your cash advance doesn't push your negative balance to positive, you probably won't be charged interest, but you might have forfeited your grace period for other charges that may come in for the statement period, that will vary by banks. If this cash advance is the only charge for the statement period, then it will likely be credited by the negative balance. If however, there are more charges than that, it's not clear what charges will be credited against your negative balance first, meaning your cash advance draw may result in cash advance interest charges.
You really need to call your bank. This will vary by bank and product. People often cite the provision of the CARD act that seems to say, all payments made will credit the highest interest rate first, that's not true. The card act requires that the required payment indicated on your statement be applied to the highest interest rate balance first, it doesn't require that your whole payment or that all payments made in the statement period be applied to the highest interest rate balance. Different banks apply multiple payments and excess payments differently.
In this very edge case, if you have a negative balance and you take a cash advance and the total cash advance amount including any specific cash advance fee and any other ancillary fee (ATM, currency conversion, etc) either results in a still negative balance or a zero balance and there are no other charges made in the statement period then it's safe to say you probably won't accrue interest in that statement period.
If literally any other variable is different then it's a crapshoot and will depend on the variables and the bank; so back to the top of the answer, just call your bank.
For Discover cards, under all versions of the Discover cardmember agreement, you will always be charged the cash advance fee, which is the greater of 5% or $10. Given a -$100 balance, if you take out a $100 cash advance, the resulting balance (including fee) of $10 will be subject to the cash advance interest rate. Assuming no credits or payments post on the same day, interest will accrue on that balance immediately, to be applied starting on the next day. You will not be charged interest for a cash advance of $90 or less.
Interest is calculated for whole statement cycles, based on the balance at the end of each day. Let's follow each step as written in the agreement:
How We Calculate Interest Charges—Daily Balance Method (including current transactions)
We calculate interest charges each billing period by first figuring the "daily balance" for each Transaction Category. Transaction Categories include standard Purchases, standard Cash Advances and different promotional balances, such as Balance Transfers.
How We Figure the Daily Balance for Each Transaction Category
- We start with the beginning balance for each day. The beginning balance for the first day of the billing period is your balance on the last day of your previous billing period.
The beginning balance is -$100.00. Because this is a negative balance, there is no minimum payment due. As required under the Credit CARD Act 2009, it will be applied to the highest-interest sub-balance first, which is the cash advance balance, and not on a purchase or balance transfer (both of which are subject to lower interest rates) if they happen on the same day. As such, any such charges will have no bearing on how interest is calculated on the cash advance.
- We add any interest charges accrued on the previous day's daily balance and any new transactions and fees. We add any new transactions or fees as of the later of the Transaction Date or the first day of the billing period in which the transaction or fee posted to your Account.
[...]
How We Include Fees
We add Balance Transfer Fees to the applicable Balance Transfer Transaction Category. We add Cash Advance Fees to the applicable Cash Advance Transaction Category. We add all other fees to the standard Purchase Transaction Category.
The Transaction Date is the date on which the cash advance was taken out. Since the beginning balance is negative, no interest is added at this point. $110, the sum of the cash advance and associated fee, is then added. The balance is now $10, subject to the cash advance interest rate.
- We subtract any new credits and payments.
If you make a payment or receive a credit that posts on the same day you take out the cash advance, it'll be applied next. If it's at least $10, the daily balance for this day will be zero or negative, and you will not be charged interest. Otherwise, interest will accrue on the remaining balance of up to $10, to be applied starting from the next day.
Note that if the cash advance was taken out at the end of the statement cycle and it didn't post until the next cycle, interest would be computed starting from the day it posted. If another transaction posted between the first day of the next cycle appears and the day the cash advance posts, the starting balance for this calculation would not be the $100 credit balance that would be on the statement. Instead, the balance at the end of the day before the cash advance had posted would be used instead.
The interest on the cash advance also has no bearing on the grace period you receive for purchases made during the statement cycle (but read on for an important note). If you pay the statement balance in full at the end of the current billing cycle, including the cash advance portion of the balance, you will not be charged interest for the purchases, only the cash advance. (Caution: Depending on the card, this may not apply for subsequent statement cycles due to residual interest. This can cause future purchases to become interest-bearing. Because payments over the minimum must be applied to the highest-interest sub-balance first, there may be an unpaid portion of the purchase sub-balance going into the next cycle. You may need to pay more than the current balance or contact customer service to address this issue.)
The above can vary by issuer and card (e.g. the fees charged may differ), but the process should be similar for most recently-issued cards. For example, the interest calculation process outlined in the Chase Sapphire Reserve cardmember agreement (page 11) is fundamentally the same.
Under this process, interest is compounded daily, with the daily interest rate calculated by dividing the APR on your card by 365. The final interest charge for each statement cycle is the sum of the interest charges for each day. The "Balance Subject to Interest" value on your bill is the average of each day's interest-bearing daily balance taken over the length of the statement cycle. This applies separately for each sub-balance (purchase, balance transfer, cash advance) for which there may be a different interest rate.
