With the summer holiday season fast approaching now's a good time to start thinking about the best value plastic to take with you abroad.
Debit and credit cards offer a secure and convenient way to pay but the fees and charges vary and are often expensive to use overseas, so it's worth considering a cheaper alternative before you travel.
The Clarity Credit Card from Halifax has been a popular choice to use abroad for many years while prepaid currency cards from Centtrip, Ukash, FairFX and myTravelCash are also worth a look.
The cost savings make it worth carrying a specialist card along with your passport whenever you travel outside the UK. Most banks add on a foreign usage fee to all credit card cash and purchase transactions. In most cases it's around 2.75 per cent to 2.99 per cent. But that's only half the story, as on top of the usage fee, most credit card cash withdrawals will cost you around an extra 3 per cent, so an ATM withdrawal of £100 currency equivalent can easily set you back a combined charge of around £6, thus best avoided unless an emergency.
We tend to take our debit cards for granted, particularly because they don't cost anything to use while in the UK. Unfortunately it's not the same when you're overseas. As with credit cards there is a usage fee for cash withdrawals (2.75 per cent to 2.99 per cent) plus an ATM withdrawal charge between £1.50 and £5.00.
However, the card charges that catch most people out are those levied for debit card purchases, which are subject to the usage fee above, plus up to an additional £1.50 per transaction regardless of the amount. The worst offenders are Halifax (£1.50 per purchase transaction), Santander (£1.25), Lloyds Bank and TSB both £1. If you're looking for a fee free debit card for using overseas, you'll need to open a current account with Norwich & Peterborough Building Society or Metro Bank.
It's worth spending a couple of minutes to check with your bank what the charges are for your particular plastic before you set off, rather than getting a nasty shock on your return.
At least if you understand the overseas charges, you can adapt your spending accordingly – for example, you don't want to make cash withdrawals or purchases of £10 if you're going to be hit with charges of £1.50 plus each time.
Looking at a scenario where you spend £1,500 currency equivalent including three £200 value ATM withdrawals and nine purchase transactions, it would set you back total charges of £22.30 with a Prepaid Currency Card from Centtrip or £24 with a FairFX Anywhere Card whereas using a debit card from Santander or Lloyds Bank would cost around five times that at £61.50 and £62.85 respectively. Prepaid currency cards are chip and PIN secure, accepted where you see the MasterCard symbol and offer a far cheaper way to pay than most high street debit and credit cards. With sterling currency cards they can be loaded from your debit card and as such the exchange rate is locked in at the time the cash is transferred to the card.
A final warning, whatever type of plastic you use overseas beware of an increasingly common custom (particularly in Europe) where the foreign retailer or ATM gives you the option to pay in pounds sterling, known as Dynamic Currency Conversion. Although you know how much you'll be debited, the downside is it gives the retailer the opportunity to use an uncompetitive exchange rate, which could see you paying over the odds – the golden rule is never pay in British pounds.
Andrew Hagger is an independent personal finance analyst from moneycomms.co.ukReuse content