The traveller's check: bargains can mean bills

Our Personal Finance Editor Melanie Bien explains the many pitfalls of shopping overseas

The strength of the pound and cheap package deals mean there are plenty of bargains to be had if you shop abroad for Christmas presents. But if you don't plan carefully how you are going to pay for your purchases, you could get a nasty surprise when the credit card statement plops on the doormat.

The strength of the pound and cheap package deals mean there are plenty of bargains to be had if you shop abroad for Christmas presents. But if you don't plan carefully how you are going to pay for your purchases, you could get a nasty surprise when the credit card statement plops on the doormat.

Avoid hidden costs and charges by planning ahead. Ideally, you should take a small amount of foreign currency, traveller's cheques and a credit or debit card with you. Avoid carrying wads of cash because if it's stolen, your travel insurance will let you claim only up to about £400. Check your policy.

Traveller's cheques used to be the most common way to take money abroad because they can be replaced with a single phone call within 24 hours of being lost or stolen. But plastic is becoming more popular as it requires no forward planning and avoids the need to hunt for ATMs (unless you are withdrawing cash) or to carry lots of cash. In some instances it is essential: if you want a hire car in the US, for example, you must have a credit card.

But charges for using credit cards abroad can be high, and they are not accepted everywhere. Before you go, check with your issuer how much it charges for overseas use. Many issuers add a foreign loading fee, which averages 2.75 per cent of the transaction. So if you spend £1,000 on your credit card, you will be charged £27.50. Cash withdrawals from ATMs carry a further handling fee of around 2 per cent. So withdrawing £1,000 in cash via your credit card could set you back 4.75 per cent, or £47.50.

One solution is to keep a separate credit card for holidays. Nationwide and Lombard Direct make no extra charge for foreign use, while Liverpool Victoria, Frizzell and Saga don't charge a loading fee in Europe (1 per cent elsewhere).

The other problem is card fraud. Inform your card issuer of your trip, otherwise your card may be blocked because your spending deviates from the norm. While you're on the phone, check your credit limit is high enough: there's nothing worse than going all that way to find bargains only to have your card rejected.

When shopping, never let your card out of sight because a dishonest sales assistant could try to skim the details (if the card has a magnetic stripe) by swiping it through a small card reader under the counter. These details are then used to make counterfeit cards, which are sold on. Keep all receipts and check them against your statement when you get home. If there are discrepancies, contact your card issuer immediately.

Report lost or stolen cards to the issuer immediately: jot down the contact details of card issuers before you go and keep them separate from your plastic.

If you have a chip and personal identification number (PIN) card with an international logo, it will be accepted by overseas retailers and cash machines. If the country you are visiting has upgraded to chip and PIN you will be asked to enter your PIN in the same way as in the UK. If it hasn't upgraded, you will have to sign when making a transaction and may be asked to show your passport. In France you will have to provide your signature - even though they have been using PINs for some time, because their system is not compatible with the UK's.

Outside the EU, remember that you must pay duty and VAT if you spend more than £145 on goods other than alcohol, cigarettes and perfume, when you come back to the UK. A trip to the US to pick up cheap electrical goods, CDs for a fiver and half-price Levi's, could find you falling foul of the same rules that caught out Coleen McLoughlin, the fiancée of the footballer Wayne Rooney. The import duty depends on the item - 8 per cent on a leather handbag, 14.7 per cent on a non-leather one, for example. VAT at 17.5 per cent is then added to the total.

To avoid a fine at the airport and being held by Customs and Excise, go through the red channel, or use the red point phone. Keep receipts, particularly if you picked up a bargain, or Customs & Excise will use a realistic price when calculating the duty you owe, which may be far higher than the one you paid.

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