Loaded! The tourist's burden

Credit cards vary widely in what they charge for foreign purchases. Steve Lodge reports
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The Independent Online
The strength of the pound is good news for holidaymakers abroad this weekend. But some may wish to question the exchange rates charged on next month's credit card bills.

The rates are generally quite good compared with what you might get in bureaux de change. But rates on different cards for the same local currency purchase can still vary by as much as 2.75 per cent, according to a specially commissioned analysis for the Independent on Sunday. And if you have the choice, it may pay to use a Mastercard rather than a Visa card.

Such rate differences may not matter on a bill for a few drinks - unless you're skiing in a Swiss resort, perhaps - but over the course of a holiday they could be worth a bottle of duty-free or more.

Aside from what the under-lying currency markets are doing, the exchange rate you get depends on the card issuers, which load the currency market exchange rate they receive from Visa or Mastercard. Only Frizzell Bank, which is owned by the Liverpool & Victoria Friendly Society and which targets its cards at people who go abroad a lot, makes no loading (telephone 01202 295544).

The issuers with the worst exchange rates - as much as 2.75 per cent worse than Frizzell's - are the Co-op Bank (which prides itself on its ethical lending stance), Midland, NatWest and TSB, as our table produced by RBS Advanta shows.

If an issuer offers a choice of Mastercard or Visa, you could be better off using the Mastercard. Visa itself loads its exchange rates by 1 per cent outside Europe, 0.2 per cent in Europe. These are built into the figures in our table and many issuers will, in effect, top up their own loadings on their Mastercards so making the overall loadings on both cards the same. But Frizzell is among those that do not make the Mastercard top-up, so making it cheaper.

Credit cards generally are a cheap and convenient way of paying for holiday purchases compared with changing currency, traveller's cheques or internationally accepted debit cards (those with the Maestro symbol, for example). Using a credit card at a foreign cashpoint machine can also compare well with other ways of getting currency. On top of the exchange rate loading there is normally an administration fee, typically of 1 to 2 per cent with a pounds 1 minimum. If your card charges interest then this is generally instead of the administration fee and will work out broadly the same, assuming you pay off your bill at the end of the month.

If you already have a number of cards, it clearly makes sense to use the one that loads the exchange rate the least for purchases. But whether it is worth switching cards specially is another matter. The problem with the Frizzell card is that it carries an pounds 11 annual fee. To cover this cost you might need to put hundreds of pounds of foreign currency purchases on your card. Unless you go abroad regularly, it may not be worth while.

Other cards may have worse exchange rates but no annual fees, and in the case of the Alliance & Leicester's new Money Back card its 2 per cent cash rebate on all purchases will help offset its high exchange rate loading. The card, the first of its kind to offer cashbacks, has already attracted tens of thousands of applicants, says the A&L.

Issuers say there has been very little competition on exchange rates between cards, although the more people who challenge their rates, the sooner this might change.


Card %

Alliance & Leicester 2.75

Bank of Scotland 1.75

Barclaycard 2.65

Co-op 2.75

Frizzell 0

Lloyds 2

Midland 2.75

MBNA 2.5

NatWest 2.75

RBS Advanta 2.5

Royal Bank of Scotland 2.65

TSB 2.75

Charges are in the form of an exchange rate loading, so a loading of 2.75 per cent means an exchange rate 2.75 per cent worse than the underlying foreign exchange market rate. With some issuers, Mastercards have lower loadings than Visa cards.

Source: RBS Advanta

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