Steve Willey, Head of Cards
It seems there's no escape from rising costs as even holidaymakers are being hit with HSBC increasing its charges for withdrawing cash overseas.
From August 8, HSBC customers will be hit with a 2% charge every time they use a cash machine abroad up to a maximum of £5 - that's a rise from the provider's previous 1.5% charge. There is also an additional loading fee of 2.75% when the currency exchange is made.
It's not just HSBC that has increased its rates in recent weeks - fees on numerous credit cards have also gone up. MBNA, which also provides Alliance & Leicester's and Virgin's credit cards, has recently hiked its loading fee from 2.75% to 2.99%. Meanwhile, the Aqua MasterCard foreign usage fee has increased by 0.20% to 2.95% and the same fee on the Egg Visa card has jumped by 0.10% to 2.75%.
There are a number of cards that don't charge you for overseas usage but if you're heading off on holiday in the next few weeks there probably isn't time to apply for one, so what else can you do to ensure your holiday spending doesn't cost more than you'd bargained on?
Tip one: limit the number of withdrawals
If you need to withdraw cash when abroad then limit the number of times you visit the cash machine as most providers charge a percentage fee for each withdrawal, but many also have a minimum charge and an upper cap.
For example, Lloyds TSB charges 1.5% of the amount you withdraw with a minimum transaction charge of £2 and a maximum charge for each transaction of £4.50. So, if you withdrew the equivalent of £20 from an ATM in Spain, you'd be charged an additional £2 which is equivalent to a 10% withdrawal fee. It is therefore worthwhile working out how much cash you are likely to require and taking it all out at once, rather than as and when you need it.
The only debit card that does not charge for overseas withdrawals is the Nationwide debit card. To get this card you'll need to open a Nationwide Flex Account.
Tip two: never use a credit card for cash withdrawals
Regardless of whether you are at home or abroad, you should avoid using a credit card to get cash. Not only are you likely to be charged a withdrawal fee, but you will also start accruing interest on the amount you withdraw immediately. This is obviously different from purchases made with credit cards as you are only charged interest on these if you do not pay your balance off in full at the end of the month.
Cash withdrawal fees on credit cards also tend to be higher than those on debit cards - typically 2.5%. Most providers also levy a higher rate of interest on withdrawals than they do on purchases or balance transfers. For example, the Capital One Platinum card, which has a typical standard rate of interest of 12.9%, charges 25.9% on cash withdrawals.
Tip three: consider a prepaid card
If you've left it too late to apply for a new credit or debit card there's probably still time to get hold of a prepaid card, and it can be just as cost effective. If you apply now, you should receive your card within seven days.
A prepaid card works like a pay-as-you-go mobile phone - you load your cash on to the card and this is how much you have to spend. Crucially, they're much safer to carry than cash because if you lose your card most providers will replace it with all the funds intact (though there is sometimes a fee for this service). The other bonus is that the leading cards are as competitive as the leading credit cards for overseas usage.
Neither the FairFX Euro Currency Card Exclusive nor the Caxton fx Euro Card charge a loading fee on foreign transactions. However, you will still be charged if you use the card to withdraw cash from an ATM, although the fees are lower than those on credit and debit cards - FairFX and Caxton fx both charge a flat fee of €1.50 (about £1.20) for cash withdrawals.
Not all prepaid cards are the same though so you do need to check the small print as some do have hidden fees. The FairFX Euro Currency Card Exclusive usually costs £9.95 unless you load £500 or more onto it, but if you apply through moneysupermarket.com, the application fee is waived if you put €10 onto it. There is no application fee on the Caxton fx Euro Card.
Both FairFX and Caxton fx also have dollar cards, so it is not only those travelling to the Eurozone who can benefit from the convenience of prepaid cards.
To compare rates on more prepaid cards visit our credit cards section. For more on what to look out for with prepaid cards check out our article 'Are prepaid cards the answer to foreign spending woes?' Before you travel remember to check the top-up methods available as some prepaid cards only permit top-ups face-to-face, whereas others allow you to use the internet or the phone.
Tip four: always pay in the local currency
Whichever card you use overseas watch out for a process called 'dynamic currency conversion' (DCC). This is when a retailer offers to charge you in sterling rather than the local currency. It seems straightforward and helpful as you will know the 'real' price of the transaction, but there is actually a sting in the tail because the rates of exchange are usually very poor. You will usually get a much better exchange rate if you pay in the local currency as the value of the transaction will then be converted back to sterling using the daily Visa or MasterCard rate.
Make sure you check the currency you are being charged in before entering your PIN or signing anything.
Tip five: order cash online
It's best to take some cash with you in case you can't find an ATM at the airport and you'll probably need a small amount of money with you anyway for small ticket items such as taxi fares or coffees.
According to research from moneysupermarket.com, around half of the people heading overseas for holidays make last-minute dashes for cash rather than using cheaper and more convenient options. You can order cash online through ICE, which charges no foreign currency commissions and offers free home deliveries on amounts above £300 (£4.95 for lower amounts). Online FX, which also has no foreign currency commissions and charges £4.95 for home deliveries, guarantees that if you order before 12:30pm it will deliver by 1pm the next working day.
Crucially, you can also use both of these services to exchange any leftover cash, commission free, when you return.
What if you're not travelling until later in the year?
If you have six weeks or more until you plan to travel then there is still time to apply for one of the debit or credit cards that don't levy overseas usage fees. As mentioned earlier, the Nationwide debit card linked to the Nationwide Flex Account is the market leader for overseas withdrawals.
If you are looking for a credit card, there are several products to choose from.
The pick of the bunch is the Abbey Zero Card, which has no foreign exchange loading fees anywhere and doesn't charge a fee for withdrawing cash (though an interest rate of 25.9% does apply). It also offers 0% on purchases for six months after which it charges 18.9% - making this the market leading card to spend on. Its nearest competitors are the Nationwide Gold Card and the Post Office Classic Credit Card. Both of these cards also have no loading fees, but do charge for withdrawals - both at 2.5% with a minimum charge of £3. The Nationwide Gold Card has a 0% purchase period of three months after which it charges 15.9%. The Post Office Classic Credit Card also has a three month 0% purchase period before reverting to 16.62%.
Remember whichever card you use to set up a direct debit to repay the balance in full each month - otherwise the interest charges at the end of the introductory periods could dwarf any gains.
Here are some more travel tips:
- Make sure you have a record of contact details for your card provider in case it is lost or stolen.
- Inform your provider before you travel overseas - this will reduce the chances of them stopping your card for regular foreign usage which is sometimes seen as 'unusual activity'.
- Take more than one card with you as if you do need a replacement you don't want to be stuck without any access to cash. Ideally carry one in your wallet and keep another in a safe place at the hotel.
- Watch out for airlines that offer to let you pay for something in euros but then give you change in pounds - you may be stung by the exchange rate.
Have your say: Have you been stung by dynamic currency conversion or overseas credit card fees? Or perhaps you've got some additional travel tips. Visit our forum and share your views with other members.
Disclaimer: Please note that any rates or deals mentioned in this article were available at the time of writing.
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