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Cards levy a high price on foreign buys

CREDIT card companies are able to exchange the money to pay for their customers' expenditure abroad at a much better rate than that offered to tourists, but the handling charge they add often means that making the purchase with a credit card is only marginally cheaper than using traveller's cheques or cash.

The amount that each credit card issuer charges for using the credit card abroad varies from about 2 per cent to 2.75 per cent. The credit card companies claim that this pays for the cost of providing the service abroad. Barclaycard, for example, charges a 2.65 per cent handling charge on the wholesale exchange rate.

This means the exchange rate for French francs using a Barclaycard - including the handling charge - is the same as the tourist rate for cash, while the rate for traveller's cheques is slightly higher. But these would also carry other commission charges.

Last year, Barclaycard customers spent a total of pounds 721m abroad - the total amount charged in transaction costs would be about pounds 20m.

Other companies charge less. American Express, First Direct, Midland, and Lloyds all charge 2 per cent. Users of a Lloyds Access card would get a dollar exchange rate, including charge, of some 3 cents less than the rate at which Lloyds itself exchanges.

Coutts on the other hand charges 2.75 per cent for transactions abroad.

Other factors affect the cost of using credit cards abroad. The credit card companies may all use different wholesale exchange rates.

Coutts looks for the best possible exchange rate, while other credit card issuers will use the exchange rate provided through the Visa network.

The amount credit card holders end up being charged for purchases abroad can also be affected by sudden movements in the currency exchange between the card being used and the time at which the credit card slip is processed.