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Baffling travel costs go under the microscope

Money insider

I was pleased to see Consumer Focus, the statutory consumer champion, submitting a super-complaint to the Office of Fair Trading (OFT) this week, regarding the charges and commission consumers pay for their holiday money.

For too long now, travellers have struggled to understand how much it costs them to use their plastic overseas while many others are taken in by the so called "0 per cent commission" currency deals.

No matter how the banks want to dress it up, it's an area that continues to annoy holidaymakers with complex tariffs and rip off charges taking an excessive bite out of the holiday spending budget.

While our cards offer a secure and convenient way to pay for holiday spending, the associated fees and charges vary widely and are a constant headache for many of us.

When using a credit card abroad, people need to remember that the majority of providers will add on a foreign loading fee to all cash and purchase transactions. In most cases these charges are around 2.75 per cent to 2.99 per cent, however there are a few cheaper options available.

On top of the loading fee, most credit card cash withdrawals, are subject to an additional levy (as in the UK) of around 3 per cent, minimum £3, so a credit card cash withdrawal of £100 can easily set you back a combined charge of around £6.

Some credit cards such as the Halifax Clarity card and Sainsbury's Gold card (£5 monthly fee inc comprehensive travel insurance) don't charge any loading fee on purchases or cash transactions and are free of ATM withdrawal fees too.

Charges on debit card transactions overseas is the biggest holiday money gripe. Because the card doesn't cost anything to use while in the UK, it's often something that travellers overlook, until their post-holiday bank statement hits the doormat and then it's too late.

As with credit cards, there is a loading fee for cash withdrawals (2.75 per cent to 2.99 per cent) plus a withdrawal charge, typically between £1.50 and £5.

However the charges that catch most people out are those levied for debit card purchases which are subject to the conversion fee above, plus up to an additional £1.50 per transaction. If you're a frequent traveller, take a look at the Norwich and Peterborough BS current account, where you benefit from free debit card usage abroad.

In the meantime, if you're venturing overseas, take a couple of minutes to check with your bank what the charges are for your particular plastic before you jet off, rather than getting a nasty shock when you check your account on your return.

At least if you understand the overseas charges, you can adapt your spending pattern accordingly – for example, you don't want to be making small value purchases if you're going to be hit with charges of £1.50 plus each time.

While the individual transaction costs don't sound much in isolation, if you look at a scenario where a family is away on holiday and they make five debit card cash withdrawals of £100 currency equivalent and eight debit card purchases of £50 currency equivalent, they could easily be faced with paying between £40 and £50 extra with some cards.

Consumer Focus estimates that consumers are paying £1bn per year for exchanging travel money, so let's hope the OFT embarks on a thorough investigation and flexes its muscle to deliver a cheaper and more transparent deal for us all.

New 6.9 per cent credit card from Sainsbury's Finance

For most of 2011 the credit card market has been flooded with long term 0 per cent balance transfer deals and rewards-based cards, so it was a refreshing change to see the launch of a no frills card from Sainsbury's Finance with a long term rate of just 6.9 per cent APR.

You'll need to have a Nectar card to be able to apply for this particular plastic, but at a representative APR of just 6.9 per cent, it's currently the lowest on the market and only the third sub-7 per cent card to be issued in the last four years.

This card offers a much cheaper way to manage your cash flow than an overdraft, with most bank accounts stinging you with interest rates between 16 per cent and 20 per cent.

Even if you can't clear your statement balance in full every month the interest charges aren't going to hit your pocket too hard.

It's healthy for the wider financial services industry to see the supermarket brands offering stiff competition to the big credit card players.

Credit card rates below 10 per cent are a rarity, but with base rate holding firm at 0.5 per cent for the foreseeable future, it's time we saw more credit cards offering rates at this level.

Andrew Hagger is an analyst at Moneynet.co.uk