I keep seeing the messages banks send out. 

“Need cash urgently? Use your credit card at any ATM. Instant access, hassle-free.” They present it as a feature, almost like a favour. 

Some of the credit card friends even say, “I had an expense come up, so I just withdrew ₹10,000 from my credit card. The bank allows it, so why not? I will clear it next month.” It feels smooth and almost harmless. 🙂

But I watched how this choice turned into a shock for someone close to me. 

Someone I know told me that he had withdrawn ₹10,000 in cash using his card. The bank charged him a flat withdrawal fee of ₹500 on day one, plus taxes. Interest started from the very next morning, calculated on a daily basis at a rate of more than 40 percent a year. By the time his bill arrived a few weeks later, the total had climbed close to ₹11,500. He had not bought anything new, he had not splurged on luxuries, but just because he pressed a few buttons at the ATM, his debt had grown by fifteen percent in barely a month.

The part that stayed with me was not only the money. It was the way he said, “I thought the bank was giving me a facility, not a trap.” The marketing had made it look like a service, but in truth it was one of the most expensive loans he had ever taken.

Making Sense of the Decision

When you first think about it, withdrawing cash on a credit card does not look dangerous.

You need money, you have a card, and the bank itself says you can use it at any ATM. Many people assume it works like a normal swipe at a store, where you get a few weeks of interest-free time before the bill is due. 

But the truth is very different.

The moment you take out that cash, interest begins. There is no grace period, no breathing space. On top of that, the bank adds a cash advance fee of around 2.5 to 3 percent of the amount. On a ₹10,000 withdrawal, that alone is ₹300 to ₹500, plus tax. Before you even reach home, your actual debt is already more than ₹10,500.

Then comes the interest. 

Most cards charge around 3 to 3.5 percent every month on cash withdrawals, which is equal to more than 40 percent a year. And this is not simple interest. It is calculated every single day. That means the meter starts running from the first morning after you take out the cash, and it never stops until you repay in full. Within just a month, your ₹10,000 can grow by another ₹350 to ₹400 purely in interest.

Add the fee, add the tax, and you are now looking at a total of around ₹11,500 within weeks. And this is for doing nothing more than taking money out of your own card. You do not need to be a financial analyst to see how unreasonable this is. No personal loan, no overdraft, and no digital credit line would ever charge you this much for such a small amount and such a short time.

It is not only costly, it is almost foolish. Because the numbers are stacked against you from the very first day. You are starting a race that you can never win.

Why People Still Do It

If the math is so clear, why do so many people still fall for it? The answer lies in how the decision feels in the moment.

When you are short on cash, the ATM seems like a lifeline. The bank tells you that your credit limit is available as cash. The app even sends reminders that “you can withdraw instantly.” In that moment, the only thought is relief. You are not thinking about the daily compounding, the fees, or the fact that interest has started ticking already.

Psychology plays a big part here. People believe they will repay quickly, so the cost will not matter. But life rarely works according to plan. Bills pile up, emergencies drag longer, or you simply forget the urgency once the cash is in hand. By the time the credit card statement comes, the number is higher than expected and the damage is already done.

This is why banks make money from this product. They know most people will not calculate the effective interest. They know that the promise of “instant access” will outweigh the warning written in small print. It is the same trap that keeps so many stuck in revolving credit.

The Smarter Alternatives

The irony is that better options exist, often right within the same bank. A small personal loan may charge 12 to 18 percent annually, far below the 40 percent effective rate of a credit card cash advance. Some banks also allow overdraft facilities linked to your account, again at a much lower cost. Even a short-term digital loan from a trusted fintech app can be cheaper.

And the best option is not a loan at all. It is an emergency fund. A small reserve in a savings account saves you from making desperate choices in the first place. That is why financial planners insist on building a cushion before investing anywhere else.

The point is simple. You do not need to be a market analyst to see why withdrawing cash on a credit card is almost always the wrong move. The costs are high, the psychology is deceptive, and the alternatives are cheaper and safer.

Please Stop Using Credit Cards for Cash

I have written earlier about the lounge trap and the lure of credit card perks. Those are subtle pushes that make you spend more than you intended. They chip away at your savings quietly. But withdrawing cash on a credit card is different. It is not a gentle nudge, it is an outright blow. This is one of the most dangerous habits you can fall into, because the cost starts from day one and multiplies every single day you delay repayment.

A lounge visit might tempt you into buying a ticket you did not need. A perk might make you swipe for an expense you could have skipped. But cash withdrawal on a card is far worse. It takes your money, adds fees, adds daily interest, and leaves you with a debt that is heavier with every passing week.

So my plea remains the same, only louder this time. Please stop using your credit card for cash. Explore any other option first. Because this is not convenience, it is a trap that looks small at the ATM screen but leaves a scar on your finances long after.

Disclaimer

Note: This article relies on data from fund reports, index history, and public disclosures. We have used our own assumptions for analysis and illustrations.

The purpose of this article is to share insights, data points, and thought-provoking perspectives on investing. It is not investment advice. If you wish to act on any investment idea, you are strongly advised to consult a qualified advisor. This article is strictly for educational purposes. The views expressed are personal and do not reflect those of my current or past employers.

Parth Parikh has over a decade of experience in finance and research. He currently heads growth and content strategy at Finsire, where he works on investor education initiatives and products like Loan Against Mutual Funds (LAMF) and financial data solutions for banks and fintechs.