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This 1 Credit Card Fee Helped Banks Secure a $26 Billion Payday

By Nathan Hamilton and Michael Douglass - Apr 4, 2017 at 11:40AM

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Most high-quality credit cards tend to be packed with valuable perks and lucrative rewards. They are also typically packed with fees that can leave some cardholders worse off, as rewards get wiped out by fees. That's why we Fools advocate for cutting fees wherever possible in our financial lives, and it's one reason we compiled our picks of the best no-annual-fee credit cards.

In the previously recorded Facebook Live video segment below, Motley Fool analysts Michael Douglass and Nathan Hamilton take user-submitted questions and talk more about credit card fees, including one that secured banks a $26 billion payday in 2016.

This video was recorded on March 29, 2017.

Michael Douglass: I got another question from Harris, well, actually more of a comment as well. It says: "Never use your credit card to withdraw cash." He's got a true story of a person who would withdraw $30 in cash and pay $30 for withdrawal. Absolutely. Generally speaking, withdrawing cash with your credit card is a bad move. It's a cash advance, and usually, that incurs some extra fees in addition to the APR.

Nathan Hamilton: We've hit upon this.

Douglass: We've talked about this before a few time. Nathan and I talk a lot at the office.

Hamilton: Cash-advance fee is like the absolute worst credit card fee out there. If you actually look at...we talked earlier where credit cards make money. No. 1 is interest income. I can't remember what the No. 2 is, but No. 3 is cash-advance fees. It's something like, to the tune of, I think it's $26 billion in 2016, is what credit card companies made from cash-advance fees. That's just the typical 3% fee that they charge for you to access credit card, using it as an ATM essentially.

Douglass: It's just totally brutal. Definitely one you want to avoid wherever possible.

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