Avoid unnecessary foreign exchange fees this summer

I am the Consumer Spy, on the look out for hidden catches and dubious clauses, reading the small print so you don’t have to…....

Nearly 30% of Brits holidaying abroad this summer will withdraw cash from ATMs, and over 20% will use their credit cards for purchases, which could bump up the cost of a week away by over £200. Credit card provider Abbey predicts that collectively, we’ll fork out over £70million in unnecessary foreign exchange fees this summer.

Unnecessary is the key word here though however, as with a little preparation you could avoid these fees altogether.

Uncovering the real cost of summer spending, this month the Consumer Spy reviews some of the market’s best and worst credit cards to use abroad. Holidaymakers read on…

Recent research by Abbey found that over half of British holidaymakers plan on using their plastic for purchases abroad, with the average card user putting 41% of their holiday expenses on their credit cards.

And with nearly all card providers now charging exchange fees for converting transactions made in foreign currencies, the cost for using your card abroad quickly mounts up. Worryingly, Abbey predicts a national bill of more than £73million pounds spent on exchange fees this summer.

Pushing up the cost of a week in the sun, your bargain break may no longer be a bargain when you start spending on your plastic. Callum Gibson, head of credit cards at Abbey, agreed: “£73million pounds in foreign exchange fees [is] a staggering and unnecessary sum at a time when people are having to manage their finances more carefully.”

It’s definitely not good news for customers with cards from American Express, Citibank, Clydesdale bank, Yorkshire bank, HSBC and Lloyds TSB, which have all increased their currency loading fees this year, from 2.75% to 2.99%.

The British pound’s steady decline against the dollar and the euro isn’t helping matters either. Last summer, £1 would have bought you €1.27, however today it’ll get you just €1.14, according to foreign currency experts FairFX. Coupled with the increased exchange fees, $2,000 of spending on your card in the US could cost £300 more than it did last summer, and those holidaying around Europe will find that €2,000 could cost £205 more.

Even Nationwide, which was once praised for being one of the few providers that didn’t levy any loading fees, is now passing on a charge from Visa that will add 0.84% on to purchases outside Europe. This will rise to 1% from 1 July, just in time for the holiday boom.

Plastic fantastic?

Nearly 70% of Brits prefer to take their holiday travel money as cash, according to figures from FairFX, however more than two thirds of still take a credit card away with them - 35% of whom said they have had to use their plastic for unforeseen or emergency spending on previous holidays.

This is not a wise move, especially when it comes to cash withdrawals. Apart from a little credit gem from Abbey, the cheapest cards on the market charge 1.5% of the amount you withdraw while abroad, the worst charge 3% - meaning a hole in the wall could quickly burn a hole in your pocket.

Since last year, Lloyds TSB has hiked the withdrawal rate on its six credit cards from 2.5% to 3%. So taking the equivalent of £200 out will incur a fee of £6. Add on the 2.99% currency loading fee and customers are being charged almost £12 for every £200 withdrawn while abroad.

And it’s not just credit card withdrawals that have been hit. HSBC recently hiked the withdrawal fee on its debit card from 1.5% to 2%.

So, what’s the answer? How can you avoid these unnecessary charges, and how can you avoid being greeted by a fee-heavy credit card bill when you arrive home from your week in the sun

The simplest answer, though sometimes not necessarily the safest, is to ditch your credit cards entirely. The Consumer Spy knows that this is a lot easier said than done however.

Abbey's Callum Gibson for Abbey advises those that must use their card while abroad to make sure they use one with minimal charges: “The Abbey Zero card offers fee-free foreign usage anywhere in the world.”

The popular card, which has an APR of 18.9% and is available in branch, over the telephone and online, is a favourite of columnist Hazel Cottrell, not just because of its competitive rates but also as its the only card on the market that offers fee-free spending aproad AND has no fee for cash advances. “It’s ideal for those rare times borrowers might need to take out cash in an emergency,” said Gibson.

A rival credit card from the Post Office comes a close second to Abbey's, and is another one worth keeping in yourwallet this summer. It offers a typical variable APR of just 16.9% and 0% on balance transfers for first 12 months, as well as 0% commission on purchases overseas, making it the ideal candidate for buying all those souvenirs.

However, cardholders should avoid using this card at foreign ATMs, as the Post Office has just increased its cash withdrawal fee from 2% to 2.5%.

Pre-pay for your holiday

With the credit crunch squeezing everyone’s finances, it’s more important than ever that you get the best deal on your holiday travel money. However, according to figures from FairFX, only 2% of holidaymakers are planning to use pre-paid currency cards while abroad.

Pre-paid cards, though not the most obvious choice when it comes to spending abroad, do have a lot of advantages specifically for holidaymakers. The Post Office Travel Money Card for example, is convenient, has no purchase fees and can be used in millions of shops and restaurants worldwide.

A lot safer than carting around a pocket full of cash, a pre-paid card lets you load money onto it, meaning that if it’s stolen your bank account will still be safe from fraud. And with the Post Office Travel Money Card, in the unfortunate event that it is lost of stolen, you can request a replacement 24-hours a day, seven days a week from anywhere in the world, letting you enjoy the rest of your break.

The emergency replacement service does cost £35 though, so try not to be careless with your cards.

According to FairFX, the foreign exchange specialists, going pre-pay is the cheapest way to spend abroad, especially if you’ve left your money until last minute and would otherwise have to resort to using an airport bureau de change.

Putting £1,500 on a FairFX card before you travel will get you about $2,350 or €1,700. When compared to changing up currencies at Heathrow, for which you’d only get $2,170 of €1,575 for the same amount, the pre-paid card look.

The figures from FairFX really highlight the savings that can be made with plastic that’s pre-paid. For a family of four holidaying in Florida or France, an extra $300 or €200 to spend could equal a day of Disney fun in Orlando or Paris!

Stephen Heath, chief executive of FairFX, echoes the Consumer Spy’s own thoughts by asking: “Will 2009 be the year that travellers wake up to the savings they can make by using a pre-paid card for all their holiday spending?”

“Many of us might intend to look for the best deals,” said Heath. “But when it comes to the crunch people just aren’t making the effort to get the best bang for their buck.”

If you have a burning issue or a dodgy clause you’d like the Consumer Spy to investigate, please email me.

As always, Consumer Spy is on the look out for hidden catches and dubious clauses, putting you in know.

Columns archive

Click here to view past columns.

Add a comment

Print

Send to a friend

Bookmark with:

We want your views, register and comment on this article

Your Name:

Email:

Already Registered?

Town and Country (Optional):

Phone Number (Optional):

We will contact you if we can help with your issue, your number will not be given to any third party.

Terms and Conditions Apply

Does this affect you? Want to add a comment?
Tell us about it.