How to ensure holiday costs are plain sailing

A trip can be spoiled if you discover you've been ripped off. But a little planning can cut the risk, says Simon Read.

British holidaymakers risk running up more than £327m in extra charges just by flashing their plastic while abroad this summer. The figure has been calculated by comparison site uSwitch which warned this week that if you use the wrong credit or debit card, your summer break will end up costing you a lot more than you planned.

The chances of heading off to the sun and relaxing for a week or two are remote for anyone watching their budget. There are costly dangers ahead when you spend, make phone calls – or even drive your holiday motor.

Excess car-hire insurance scam

One of the most pernicous ways for you to be fleeced on holiday is the excess car-hire insurance scam. You'll be hit with the scam when you arrive at your holiday destination and turn up to pick up your hire car.

The people pushing the extra insurance know that you'll be frazzled from your flight and keen to get to your holiday home or resort. And they know that there won't be a better time to encourage you to sign up to something that could cost you hundreds but needn't set you back more than £40. The scam is simply this: you'll be told to buy excess insurance at your destination, even though you may have already stumped up for car cover. You'll be told that if you don't stump up the cash, you risk being liable for up to £2,000 if the car is damaged or stolen, even if it's not your fault.

Even a small chip on a windscreen can cost hundreds to fix, and the car-hire company will demand the cash from you – or take it straight off your credit card – if you don't have the excess cover, which can be charged at more than £20 a day, working out at almost £300 extra for a fortnight's break.

But you can beat the excess insurance tricksters by buying a policy before you fly. They can cost from as little as £3 a day. or just £40 for an annual policy, which makes sense if you're away for more than a week or are likely to take another trip later in the year.

Currency conversion con

Here's a ruse to be wary of when you're paying bills overseas: don't be tempted by shopkeepers or cafe owners who offer to convert your bill into sterling.

It can seem like good sense. After all, you'll know right then how much the goods or services have cost you in your own currency, the pound. It could probably help give you a clearer idea whether you're getting good value or are being ripped-off.

But if you take up the offer you will almost certainly be ripped off. Why? Because the shopkeeper or cafe owner will use their own conversion rate, and you can bet it won't be anywhere near as good as the rate which your bank may use. (The bank conversion rate, incidentally, is in turn probably a lot less attractive than you could get yourself by shopping around for currency, but that's another story!)

The process is known as dynamic currency conversion and is a very common occurrence in tourist resorts across the world. In fact, many foreign bank ATMs also offer the same service, which can prove costly if you fall for it.

It's effectively a hidden charge that the overseas merchants make. By converting your cash at their own rate, they can pocket the difference, which is a nice earner for them. In some cases the difference is as much as 3 or 4 per cent.

You can avoid the charge by choosing to pay in the local currency. The money will then be converted by your bank which should hopefully be a lot better than the local rate applied.

To avoid getting stung by the charge at ATMs, be armed with the right plastic. Credit cards, for instance, charge interest from the moment you withdraw cash, and most also charge a foreign loading fee of 2 to 3 per cent every time you withdraw cash abroad.

There are a few exceptions: among credit cards the Halifax Clarity card and Saga's card for the over-50s don't charge foreign-exchange fees. Among debit cards those from either Norwich & Peterborough Building Society or Metro Bank don't charge extra for foreign spending or withdrawals.

You could also consider pre-pay cards. They usually have no extra charges and, as you load up currency beforehand, you'll know exactly the rate you paid, which can actually make them the cheapest way to spend abroad.

However, that will depend on what other charges they have – such as an upfront fee – and how exchange rates move after you've loaded a card.

Mobile-phone roaming charges

A great new agreement has come into force which means that travellers are now protected from excessive mobile-phone roaming charges within the European Union.

Regulators imposed a cap of €0.24 per minute on making calls, €0.07 per minute on receiving calls and €0.08 for sending a standard text message. Data charges for using the internet are also set to be capped at €0.45 per megabyte, or a maximum of €50 per day.

The limits are set to fall further in 2014, but don't assume you'll benefit. If you're travelling outside the European Union, there's no deal, which could still leave you with a huge bill when you come home if you use your phone in places such as Croatia, Norway, Switzerland, Iceland and Turkey.

What's essential is to switch off your phone's data roaming, which should be found under your phone settings.

Research from Which? published last year revealed that if you leave your data roaming turned on while outside the EU you could rack up charges of £336 in a week, even if you just leave your phone in your suitcase.

That's because applications and downloads automatically run in the background, without you knowing anything about it, potentially adding up to a huge, surprise bill.

Use free local wifi – which is usually now offered in most hotels, restaurants and cafes abroad – instead.

It's also worth finding out about roaming bundles and apps – such as BT SmartTalk – which allow you to make calls through your BT landline at your standard rate on your smartphone, via an internet connection.

Check with your existing mobile-phone firm to see what they offer, advise the experts at e2save.com. O2, for instance, has bolt-ons where, for £4.25 per month, you won't be charged when you receive calls in Europe, or it only costs 25p per minute to call anywhere in Europe.

If there's one country you return to again and again, you can buy a bolt-on from 02 that allows you to make and receive calls for only £2.55 per month.

Another solution, of course, is to buy a local, pay-as-you-go Sim card. You'll be charged local rates for data downloads and local calls and texts.

Worldly wise: tips for tourists

Travel checklist

Andrew Hagger, who writes our weekly Money Insider column, offers the following checklist for travellers:

* Before you jet off, check your current-account balance and your credit-card balance and limit

* Check the expiry date on your credit and debit card(s) – you really don't want them expiring while you're away!

* Tell your bank and credit card company that you're going away, otherwise they may think that the overseas transactions are fraudulent and could put a stop on your cards.

* Take your EHIC card with you but remember it's no substitution for travel insurance.

* Take a spare credit card with you as a backup, and keep it in the hotel safe.

* Don't forget to take your travel insurance details with you – just in case!

* Keep photocopies of the following in your hotel safe: front and back of credit and debit cards, traveller's cheques and passport. They will prove a godsend in replacing the originals should they be lost or stolen.

Travel cover: The insurance that may not pay

Do you need it?

Yes, to give you the peace of mind that anything stolen or lost will be replaced and that if you need medical treatment, you'll be able to afford it.

So you must ensure you have adequate cover, not just the cheapest policy you can find. If you're travelling outside the EU, for instance, you will need worldwide cover.

In addition, it's crucial to check that a policy will cover the length of your trip, especially if you're going for longer than a week.

Small print

Graeme Trudgill of the British Insurance Brokers' Association says travellers should look out for the following exclusions in their policies.

* Excess – check whether it's per claim or per section of the policy.

* Criminal acts – can include balcony jumping.

* Hazardous sports – kite surfing is normally excluded but bungee jumping using a licensed operator may not be.

* Pre-existing medical conditions – claims from existing medical conditions are usually excluded unless agreed with the insurer first.

* Sick relatives – you must tell the insurer if a relative's health could lead you to cancel your trip. Otherwise you may have any claim turned down.

* Unattended Items – if you leave a wallet on a beach towel, an insurer may turn down a claim.

* War – check Foreign & Commonwealth Office advice at gov.uk/foreign-travel-advice before travelling.

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