Millions of families will be heading abroad over Easter and many will make use of their debit and credit cards while they are away, unaware that the transactions they make could cost them a lot more than they are expecting.
British holidaymakers spent £8.9billion on cards last year according to the Office for National Statistics, yet most providers charge for the privilege of this convenience – foreign usage fees cost British consumers more than £700m a year and this figure is rising.
The Office of Fair Trading clamped down on the penalty fees credit card providers could levy in 2006 and said that they could be no more than £12 – many firms used to charge in excess of £20 if you went over your credit limit or were late making a payment. As a result of the clampdown card firms have been looking at alternative ways to recoup lost revenue and hiking other charges, including foreign usage fees, seems to be a favoured strategy.
Most card providers levy a conversion charge, also known as a loading fee, each time you use a credit or debit card overseas. This typically adds about 2.75% to the cost of the transaction, although it could be more. MBNA has recently increased its fee from 2.75% to 2.99% for many of its customers.
If you take money out of an ATM there will be an additional withdrawal fee of around 2.5%, but some providers including American Express and MBNA charge 3%.
You therefore need to be conscious about what you will be charged if you use your credit card abroad. It may be that you need to apply for a new card for overseas spending if the fees levied by your current provider are among the highest.
Is it worth using a credit or debit card abroad?
Despite the charges, debit and credit cards are still very useful when abroad, not only because they are so convenient but many people also feel safer carrying a card rather than lots of cash.
Also, not all cards charge you for overseas spending. The Post Office and Nationwide building society do not levy loading fees on its debit or credit cards, making them a great option for regular travellers.
Nationwide’s Gold credit card is offering a three-month interest-free period on purchases – after which you will be charged the standard rate of interest which is 15.9% if you do not clear your balance in full. Nationwide also has a 0% offer on balance transfers which lasts for 10-months.
Normally you should steer clear of using a credit card for purchases and balance transfers if the 0% deals end at different times, as most card providers clear the cheapest debt first leaving you accruing interest at the highest rate. However, Nationwide is an exception as it clears the most expensive debt first, so this card is fine to use for both purposes.
The Post Office Platinum card is also offering a three-month interest-free period on purchases.
Another option is Thomas Cook’s credit card which, like the deals from the Post Office and Nationwide, also has no conversion fee for foreign spending and Saga’s card is good if you are staying within Europe. Saga does, however, levy a 1% fee if you use your card outside the EU.
Even if you do opt for one of these credit cards, don’t be tempted to use them to withdraw cash as they all levy cash withdrawal fees. In addition, most credit card providers charge a higher rate of interest on withdrawals than they do on purchases, and you start accruing interest immediately. It is therefore advisable to stick to debit cards when it comes to taking money out of an ATM. You will incur a withdrawal fee but you won’t be charged interest on top.
Don’t fall into the dynamic currency conversion trap
Regardless of the card you use for overseas travel you must be wary of a process known as dynamic currency conversion (DCC). This is when an overseas retailer offers to charge you in sterling rather than the local currency. While this may seem an attractive option because you know exactly what the transaction is costing, you probably won’t get a very good rate of exchange and opting to pay in the local currency will actually work out cheaper because your card provider will use the wholesale Visa or MasterCard rate.
It is therefore important to always check what currency you are being charged in before you sign anything or enter your Pin number.
Why it’s not too late to save cash
If you’re planning on getting away this Easter and haven’t already secured a cheap travel credit or debit card, it’s probably too late for this trip – although it shouldn’t stop you applying now so you have the best card in place for your next holiday.
Nevertheless, you can still save money this time around by avoiding DCC and only using a debit card for cash withdrawals.
Also remember to take some travel money with you for small ticket items so you are not paying for everything with your card. Change your cash before you travel using a provider such as OnlineFX or which both offer free home delivery and commission-free payback for any money you don’t spend.