New payment hierachy & Santander Zero - just pay cash balance only?

firsttimestudent

Hi,

I have a Santander Zero that I will now use both for cash withdrawals + purchases abroad.

Say I made a cash withdrawal of £16.20 and a purchase of £28.40 when abroad.

I know cash withdrawals incur interest right from the day of withdrawal, so I would definitely pay off the cash withdrawal ASAP.

Question is, do I need to pay only £16.20++ (say 1 pound more to cover potential interest), or do I need to pay £44.60++, if I want to avoid any interest on the purchases? Am I right that the purchases will still have a 56-day maximum interest free period?

Thanks!

Consumerist

I assume that you are currently within the 0% for 6 months on balance transfers and purchases period.

Firstly, the 56-day interest-free period only applies if you pay off your entire balance by the due date.

I hope the following makes sense but you raise an interesting booby trap that the bank has set up.

The first statement you get after making your transactions will have an interest charge added in respect of the cash advance. If you pay £16.20 + the interest charge by the due date there will be an additional interest charge on the statement after that to cover the period between the statement date and the payment date. In theory, this could go on until you pay off the entire balance because there will also be an interest charge added at the statement date which will continue to attract further interest charges up till the payment date.

The problem is that you cannot pay off an interest charge before it shows on a statement. If you try to pre-pay any interest charge, that amount will merely be deducted from the 0% purchases balance and then another interest charge will be added on the next statement date.

The simple answer is still to use separate cards for cash and purchases.

firsttimestudent

Thanks Consumerist.

I am already past the 6 months promotional period. Am now using the Santander Zero for purchases and settling the full balance each month, hence never incurring any interest.

Santander Zero is the only fee-free and load-free card that I have. Am hoping to get a Halifax Clarity, but that will be in the future, not immediately (too many recent searches).

So in my case, if I settle the previous bill in full each month do I still need to

a) pay the full £44.60 (cash withdrawal + purchases) ASAP, or
b) just the £16.20 ASAP, and can settle the purchase amount in the usual timeline (i.e. approximately 20 days after the next statement is produced)?

Thanks!

Consumerist

Repayments now reduce the balance of the most expensive debt first. In your example, the £16.20 cash withdrawal is the most expensive. On that basis I would say option (b) is best.

chattychappy

I use Zero alot and now mix cash, purchases and also I have a promotional balance. Since we're only just into the new regime, I can't claim to have tested every permutation. But this is my analysis:

Payments are applied to all transactions that have appeared on a statement BEFORE those that haven't. Then the hierarchy applies within that. So it's not a "pure" version of the positive hierarchy. This is in the T+Cs.

Eg assume 1st Feb statement date

20JAN £50 Cash (27.9% APR)
25JAN £50 Purchase (18.9% APR)
01FEB Statement generated showing about £100.38 (38p cash interest)
05FEB £50 Cash (27.9% APR)

If you pay £100 on 10FEB, you might hope that it will clear the cash transactions first, because these are at a higher interest rate. But in fact, £50 will go to the 25JAN purchase because this had been statemented. So interest will continue to run on your 05FEB Cash withdrawal.

For this reason, it can be worth thinking carefully about the timing of transactions. Eg if you are thinking of making a cash withdrawal, it can be worth ensuring you move it to just before a statement date so that a payment a little later pays this off first.

Certainly you can mix transactions on the card, but you have to think it through. Even if you can't optimise it the way you would like, swallowing a month's interest on cash at 27.9% APR is still cheaper than the forex loading of 2.75% on a typical card, let alone the fee they apply on top!

Word of warning about Zero abroad

Most of my CC spend is overseas. I've used Zero without a hitch - pushing through thousands of pounds for the couple of years I had the card.

Then my card got stopped a couple of weeks ago. A transaction for £40 at a shop I've been to many times before was flagged as potential fraud. Their computer started making automated, 2-hourly calls to my UK landline number. I phoned them up, confirmed the transaction and they said they would unblock the card. I also told them the countries I was in and would be visiting, which I've never bothered with before. They said no prob. Next time I came to use the card - still blocked. I called them up - it had been re-blocked because they decided an earlier transaction was also suspicious, even though I'd talked the earlier rep through all the recent transactions. So once again the card was supposedly unblocked and I reconfirmed where I was and would be going. I then made a ATM withdrawal - about £120 - at an ATM I had used before with the very same card. No problem, but the card got blocked again and the computer started phoning my home number again. Called them up again, they said it was because of my unusual usage pattern. Yeah right. Well, not an issue, I have backups. But what ever you do, don't rely on any single card. It was also useful in my case having a laptop with WiFi access. Apart from using SKYPE to call them, I could also go online to check the transactions myself. Not easy talking through these things on the phone and remembering exactly what you did without a bit of advanced revision!

Not sure what's changed there - but they seem to be rather sensitive at the moment!

OP question

OK as for your specific example:

Say I made a cash withdrawal of £16.20 and a purchase of £28.40 when abroad.
...
Question is, do I need to pay only £16.20++ (say 1 pound more to cover potential interest), or do I need to pay £44.60++, if I want to avoid any interest on the purchases? Am I right that the purchases will still have a 56-day maximum interest free period?

Let's assume you've already complete cleared your previous statement balance*** and these are the only two transactions since. Then if you pay £16.20 after the cash withdrawal, it will go to that (because of the higher APR). Paying a little extra won't make any difference because the interest won't have been statemented. (So you won't be paying interest on interest yet anyway.) If you do pay extra then it will be applied to the purchase if it has already been made. If the purchase hasn't been made yet, then you will be breaching the T+Cs by putting the account into credit and in theory they could return or put the surplus into a suspense account. (Unlikely if small.)

So let's assume you pay the £16.20 only. Then later you will get a statement. It will show the payment clearing the previous statement, the two transactions, and your £16.20 payment. It will also show interest from the date of cash withdrawal until the £16.20 arrives. If you pay the full balance outstanding, you will get no further interest. If you don't clear the full balance outstanding, the next statement will show purchase interest starting from the date of purchase. You could also get a tiny amount of interest on interest running from the statement date until your payment arrives. But this could well round to zero, or at most be pennies.

***if you didn't clear it in full, then your £16.20 payment will be applied to the outstanding balance from that statement rather than the withdrawal you just made. To stop interest accumulating you must clear the rest of the balance from the previous statement and pay £16.20 on top.

Footnote:
The OP has already clarified that s/he is not on a promo offer. It does change the figures a bit. As noted - once you make purchases though, unless you clear the balance in full you will pay purchase interest. Obviously you are effectively losing the promo offer by doing that. If you really need to make a purchase then the answer is to make a payment to cover it as soon as possible after but not before it has been statemented.

firsttimestudent

Wow, thank you Chattychappy for the very detailed reply. Extremely helpful.

A) Just confirming my understanding is correct then. Assuming statement date 5 March, balance £230.01. Going on holiday on 23 March, so pay the balance on the card (£230.01) on 20 March. Now nil balance on card.

On 24 March, withdrawn £89.34 in Cash, and paid £48.33 in a touristy place. On 26 March, once I return to the UK, I pay off £89.34 for the cash. So my interest on the next statement (5 April) will only be for £89.34 for the 3 days @ 27.9%, hence approximately 20p, right? I still have the luxury of paying the £48.33 on the payment due date, say 27 April?

b) On another note, I noticed that Cash Withdrawals are charged from the "date debited to the account" and not "transaction date". When, on your experience, does Cash Withdrawals appear on your internet banking recent transactions? Immediately, or usually one or two days later? How about weekends?

Thanks!

chattychappy

firsttimestudent wrote: »

A) Just confirming my understanding is correct then. Assuming statement date 5 March, balance £230.01. Going on holiday on 23 March, so pay the balance on the card (£230.01) on 20 March. Now nil balance on card.

OK so no transactions since the statement date 5 March, except your payment. Also, I assume that there is no trailing interest - but you said you've been clearing your account in full, so not an issue.

firsttimestudent wrote: »

On 24 March, withdrawn £89.34 in Cash, and paid £48.33 in a touristy place. On 26 March, once I return to the UK, I pay off £89.34 for the cash. So my interest on the next statement (5 April) will only be for £89.34 for the 3 days @ 27.9%, hence approximately 20p, right? I still have the luxury of paying the £48.33 on the payment due date, say 27 April?

Yes, exactly as you say. I make it about 6p a day. It's hard to judge these things so carefully - depending how and when you pay there could be a delay in the payment being applied. I pay from my NW current account - provided I make the payment on a weekday during normal working hours, it arrives and is applied same day because of "Faster Payments". If you posted a cheque by second class post.. well!

The only problem I can see is if, for some reason, the cash transaction didn't make the statement but the purchase did. Unlikely. But if so, then any payment you make would go to the purchase first.

Else you do have the "aforementioned luxury" !!

firsttimestudent wrote: »

b) On another note, I noticed that Cash Withdrawals are charged from the "date debited to the account" and not "transaction date". When, on your experience, does Cash Withdrawals appear on your internet banking recent transactions? Immediately, or usually one or two days later? How about weekends?

That's a bit of a mess. Most of my transactions are in Asia (several hours ahead of the UK). Generally they are debited to the account the same day or the next day. But it doesn't always appear on "recent transactions" so promptly. It's taken up to a few days to do that, though usually quicker. However the "available balance" seems to be in real time. Ie the moment I make a withdrawal the available balance is adjusted. When it finally goes through the amount might be slightly different - presumably because the exchange rate at the moment of the transaction is slightly different from when the charge is made to the account.

As I say the current hierachy regime is "new" - so stuff related to that is as yet untested by me. Will get the first statement under the new system in a couple of weeks. I doubt whether the other stuff has changed.

Given my recent hassles with Zero, I would suggest you get your cash first, in case they block it. Depending what other cards you have, it's probably easier to put purchases elsewhere than ATM withdrawals.

firsttimestudent

Thank you very much Chattychappy. It was tremendously helpful!