While it may be tempting to snag a lottery ticket right now as the Powerball Jackpot spikes to $1.73 billion – the second largest in history — buying your ticket with a credit card could cost you.
A lottery ticket purchased with a credit card is likely to be processed as a cash advance, which leaves you with high fees and no rewards.
CNBC Select explains the drawbacks of buying a lottery ticket with a credit card and what to do instead.
What’s a cash advance?
A credit card cash advance is when you withdraw money from your credit card, essentially borrowing cash against your card’s line of credit. You can typically get a cash advance in various ways, including at an ATM, in person or with a convenience check.
While a cash advance may be convenient when you, say, don’t have sufficient funds readily available in your checking account, it will cost you an extra set of fees, such as ATM, bank and cash advance fees. Cash advance fees typically amount to 3% or 5% of the total cash advance withdrawn. For example, a $500 cash advance with a 3% fee will cost you $15.
Cash advances also come with higher interest rates compared to purchases or balance transfers and lack of grace periods. This means you’ll start accruing interest from the date of the cash withdrawal.
Most credit card issuers classify lottery ticket purchases as cash-equivalent transactions (despite the terrible odds of you actually winning any money). Capital One, for instance, states on their website that other “money transfers, gambling and quasi-cash transactions” such as lottery tickets or gaming chips may also be classified as cash advances by your credit card issuer. “If you use your credit card for these transactions, you may be charged a cash advance fee and a potentially higher cash advance interest rate.”
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When it comes to purchasing a lottery ticket, your best bet is to use cash to avoid any extra fees. However, because carrying cash can often be a hassle, you can opt for a debit card. Some debit cards work like credit cards in that they allow you to build credit and earn rewards for your purchases. The Axos Bank CashBack Checking, for example, offers no fees and up to 1% cash back on signature-based transaction purchases.
Monthly maintenance fee
Minimum deposit to open
Earn up to 1.00% cash back on all transactions that require a signature.
Free ATM network
ATM fee reimbursement
All domestic ATM fees reimbursed
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Before you purchase your lottery ticket, make sure to do so with cash or a debit card instead of a credit card. Purchasing a lottery ticket with a credit card means it’ll likely be processed as a cash advance, meaning more fees for you. But you can still benefit from your purchase with a credit card-like debit card that helps you build your credit and earn rewards, like with the Axos Bank CashBack Checking.
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At CNBC Select, our mission is to provide our readers with high-quality service journalism and comprehensive consumer advice so they can make informed decisions with their money. Every personal finance article is based on rigorous reporting by our team of expert writers and editors with extensive knowledge of financial products. While CNBC Select earns a commission from affiliate partners on many offers and links, we create all our content without input from our commercial team or any outside third parties, and we pride ourselves on our journalistic standards and ethics. See our methodology for more information on how we choose the best products.
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