Money Insider: Play your cards right and have a cheaper holiday
Saturday 28 April 2012
With the summer holiday season fast approaching, it's a good time to look at the charges you can incur when using your plastic abroad. Debit and credit cards may be a secure and convenient way to pay when you're away from the UK on holiday, but the associated fees and charges can vary considerably, so it's worth getting to grips with these before you head off for your summer break.
If you use a credit card overseas you'll need to bear in mind that the majority of providers will add on a foreign-usage 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 cards offering a better deal.
Credit cards from Halifax (Clarity), Metro Bank, Saga and Post Office don't charge any usage fee, thus saving you up to £3 per £100 of purchases.
However, 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 on top, so an ATM withdrawal of £100 currency equivalent can easily set you back a combined charge of around £6, thus best avoided if possible.
We are using our debit cards more and more and tend to take them for granted, especially that they don't cost anything to use while in the UK. Unfortunately it's a different story when you use them abroad and something that holidaymakers often overlook, until the charges are debited from their account and then it's too late.
As with credit cards there is a usage fee for cash withdrawals (2.75 per cent to 2.99 per cent) as well as an ATM withdrawal charge typically between £1.50 and £5.
The charges which tend to 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), NatWest (£1.25), Lloyds TSB (£1), RBS (£1.25) and Santander (£1.25). If you're looking for a fee-free debit card for using overseas, then take a look at those from Norwich & Peterborough Building Society or Metro Bank.
With sterling looking much stronger against the euro, your summer holiday may work out to be a little less expensive this year, so don't go and spoil it by shelling out on unnecessary credit and debit card fees.
It's worth spending 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 cash withdrawals or purchases of £10 or £20 if you're going to be hit with charges of £1.50 plus each time.
While these costs don't sound much in isolation, if you look at a scenario where a family is on holiday for a fortnight 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 up to £50 extra in charges with some cards.
Another option is to consider a prepaid currency card from the likes of Fair FX or Travelex. Both these providers offer you the choice of a euro, US dollar or multi-currency card.
The cards are chip and PIN secure, accepted wherever you see the MasterCard symbol and offer a cheaper way to pay than many high street debit and credit cards.
The sterling currency cards 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, so you'll know exactly what you'll be paying for all your holiday transactions.
A final warning: whatever type of plastic you use overseas beware of an increasingly common custom (particularly in Europe) where the overseas retailer or ATM machine gives you the option to pay in pounds sterling, which is known as dynamic currency conversion (DCC).
While it may seem a good idea that you know exactly how much you'll be debited, the problem is that it gives the retailer the opportunity to use an uncompetitive exchange rate, and this could see you paying well over the odds, in some instances by as much as 3 or 4 per cent.
Even though most card issuers charge a 2.75 per cent-2.99 per cent loading fee, opting to pay for your purchases in the local currency is often still a better option than being stung by the poor rate used in a DCC transaction.
Andrew Hagger – Moneynet.co.uk
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