Be a card sharp and don’t lose money by using yours abroad
Holidaymakers who use plastic are paying the price for banks losing out on penalty overdraft fees
TRAVELLERS heading overseas this Bank Holiday weekend should think twice before using their credit or debit card abroad.
Holidaymakers paid banks and building societies more than £700m in charges for paying by plastic overseas last year, according to independent statisticians at moneyfacts.co.uk.
While many travellers find credit and debit cards are a convenient way to pay while away, this comes at a hefty price if you are hit by an array of hidden charges. These include foreign currency loading fees, transaction fees, and cash machine withdrawal fees.
Bank profits are under pressure from court rulings against penalty overdraft charges and credit card default fees. So they have been pushing up charges elsewhere.
For example, earlier this month Clydesdale raised the loading fee on its credit card by a quarter point to 2.75pc, while last month Lloyds TSB increased the foreign loading fee when using its debit card overseas by 0.24 of a percentage point to 2.99pc.
A loading fee is charged by the card issuer when you use your credit or debit card overseas for a purchase or to withdraw cash. Typically this equals 2.75pc of the transaction value. So if you spend £1,000 on your card on holiday you could be charged £27.50 in loading fees alone.
In addition, a transaction fee may be charged on overseas purchases using a debit card. For example, these can add £1.50 to the cost of a single purchase with Halifax debit cards overseas.
Making a trip to the cashpoint will not enable you to escape these fees. When withdrawing cash, you face a loading fee in addition to a cash withdrawal fee.
Take the Lloyds TSB debit card, which now charges a 2.99pc loading fee and 1.5pc fee for overseas cash withdrawals. So a customer withdrawing £1,000 abroad would pay almost £45 extra, in the form of a £29.90 loading fee and a £15 withdrawal fee.
If you use a credit card, the withdrawal fee is even more expensive, at around 2.5pc, and you face a higher rate of interest on your debt.
Rob Kenley, head of cards at Moneysupermarket.com, warned: “Never use a credit card to withdraw money from a foreign cashpoint, because you will be charged a cash withdrawal fee, loading fee, and a higher rate of interest than your normal annual percentage rate (APR).”
Another consideration is that any interest-free period that applies to purchases made on the card does not apply to cash withdrawals, so you will start racking up interest immediately.
To see if you might fall victim to unnecessary charges when using your card, read the summary boxes in card leaflets. Our table outlines the cost of making a purchase or cash withdrawal for €100 using a variety of major credit and debit cards.
If you want to use a debit card abroad which does not charges these fees, open a Nationwide Flex Account to benefit from a card that does not charge loading, cash withdrawal or transaction fees.
Whether in the UK or abroad you will always be charged around 2.5pc for withdrawing cash using a credit card. Neither Nationwide nor the Post Office levy overseas loading fees on their cards for purchases or withdrawals.
Mr Kenley added: “Another provider to consider is Saga, which does not charge a loading fee on its credit card when it is used in the European Union.”
Another factor for holidaymakers to beware of while abroad is known as a ‘dynamic currency conversion’, which is becoming increasingly common with foreign retailers. Rather than the card being billed in the local currency, the shop, hotel or restaurant is given the choice of converting the sum into sterling.
In theory, this allows customers to choose whether to pay in the local currency of the country they are in or their own currency. Mr Kenley said: “Never pay for a foreign transaction in sterling. You should politely decline a retailer who offers you this option as exchange rates are up to 3pc higher than those used by Visa or MasterCard.”
Other options for taking money abroad include travellers’ cheques and currency. Commission-free deals are commonplace, but you need to consider the exchange rate on offer to work out how good a deal it really is.
One alternative is to use prepay travel cards such as the one recently launched by Barclays, as these are free of the various charges on purchases – although you may have to pay to buy the card in the first place, and there is a mark-up on the exchange rate when loading it. These prepay cards look like credit cards and carry the Visa, MasterCard or Amex logo, but are loaded with either US dollars or euros. A small fee of around £2 will usually be charged when using them at cashpoints.
Andrew Hagger from moneyfacts.co.uk said: “Prepay cards can be an attractive way for younger people to pay for travel, with parents able to top up the card from home and also limit the spending available.
“As they are not linked to your bank account, the risk of identity theft is reduced if the card becomes lost or stolen.”
The cards can be topped up over the phone or online. Some have chip and personal identification number (Pin) security and all can be frozen if lost or stolen.
Mr Hagger added: “Whichever method you choose, make sure you are aware of any costs which may be charged, but equally as important make sure the method suits your needs, the country you are travelling to, and always have a back-up in case of theft.”