Transferring Funds From Credit Card To A Bank Account: Know Hidden Costs, Key Risks And Considerations

Whether to cover emergency expenses or meet cash flow needs, transferring money from credit cards to bank accounts can be tempting, but it comes with strings.

A cardholder can transfer money from a credit card to a savings or current account through various methods that banks and financial institutions offer. But those transactions often come with steep fees, upfront interest charges and potential hits to your credit profile. Here’s what to know about how it works, how much it costs and what you should do before proceeding.

How to Move Money From a Credit Card to a Bank Account

Direct Online Transfer

Some banks enable you to transfer directly from a credit card to a connected bank account via the Internet or mobile banking.

The most important thing to note is that it is available only to some customers and almost always only for bank-verified customers.

ATM Cash Advances

A credit card can be used to take out cash from an ATM, which can then be deposited in the bank. However, this approach is usually the priciest, as cash advances carry immediate interest and high transaction fees.

Third-Party Payment Apps

However, fintech platforms and e-wallets such as Paytm or PhonePe enable a user to load in funds through a credit card, and then transfer money to a bank account. Users must confirm the legitimacy of the platform and pay attention to service fees and terms.

Overseas Transfer

Platforms such as Western Union and MoneyGram allow for it to be sent from a credit card to a bank account, including overseas. These services depend on exchange rates and different fees and can take a number of business days to process.

The Hidden Costs

Processing Fees: Most banks impose a fee for transferring that is based on a percentage of the transferred sum. That can be anywhere from 2 per cent up to 5 per cent or higher.

Interest Charges: These transactions typically don’t offer an interest-free grace period, the way regular credit card purchases do. Interest starts to accrue as soon as the transfer is processed.

Third-Party Service Charge: Depending on the platform you use, it incurs extra charges for verification, cross-border transfers, or the quick delivery option.

Key Risks and Considerations

Credit Utilisation Jump: Heavy deposits can spike your credit usage ratio, which can lead to a drop in your credit score. Most lenders prefer to see credit utilisation of less than 30 per cent.

Debt Trap Danger: Unlike installment loans, credit card debt can accumulate rapidly with high interest rates. I have to pay this back” If you do not pay this back promptly, the borrower is going to have long-term problems.

Bank Terms: Every bank has a separate setup for fund transfers. It is important to assess the terms of your credit card and check with your bank before attempting such transfers.

Tax Hazards: The heavy use of credit cards, particularly for larger transfers, can also be a red flag for tax authorities. If required, be ready to defend the transaction.

When to Consider It

Moving cash from a credit card to a bank account should be a last resort in the case of real emergencies, like health emergencies, real emergencies, and cash flow shortages. For everyday purchases or nonessential spending, it’s advisable to depend on savings or low-interest credit avenues.

Accessing money from your credit card as a way to move money into a bank account can provide short-term relief, but it’s not a zero-cost option. Those fees can add up quickly, and interest starts accruing right away. Evaluate how it will affect you financially before you move (and have a plan for repayment). It’s a tool in emergencies, but one like any other, that must be used considerately.