Well Peter Harrison, who is the credit card expert at moneysupermarket.com, is with me to talk about the alternatives.
Q1: So Pete obviously it is worth taking some foreign currency with you for things like taxis and coffees at the airport and stuff like that, but what are the other options? Credit and debt cards are really attractive they are convenient, they are easy and you can use the same ones you use over here, but there are things to watch out for aren’t there?
PH: There are yes, and one of the key things is the fees associated to using credit cards and debit cards abroad. If you use your normal high street bank a lot of them do charge between a 2.75% and a 2.9% fee to actually withdraw cash or make a purchase using your credit and debit cards.
Q2: And if you withdraw cash there are two fees aren’t there, because if you are using it for a purchase in a shop or restaurant you will be charged a loading or conversion fee of 2.5%-3%. If you use your card to take cash out of a cash machine there is an additional withdrawal fee as well isn’t there?
PH: Yes, there is, and one of the key things is a lot of customers don’t actually spot that on their statement, as it’s very confusing between the fee you’re charged and also the foreign exchange cost as well.
Q3: Credit cards you should never use to withdraw cash from an ATM should you, because as well as all the charges there is interest?
PH: Yes, you can get charged a fixed fee at the start. You can also accrue a high interest rate up to about 27.9%, which is actually accountable from the day you withdraw cash, so taking cash out via an ATM with a credit card shouldn’t be a recommended thing.
Q4: So even if you pay your balance off in full each month you will still incur interest?
PH: Yes, exactly.
Q5: Are there any cards – if we start with debt cards to start with – are there any cards that don’t charge you for overseas usage?
PH: It’s been very publicly announced recently that Nationwide are about to start charging, but that’s only outside of Europe so look out for the foreign ATM fees associated to it, but Nationwide are one of the very few in the marketplace [to do this] at the moment.
Q6: And that is on its debit card?
Q7: There are a few more options on credit cards aren’t there, of providers that don’t charge you?
PH: There are. Again the key point is the cost associated to making a purchase on a credit card and there are three or four providers who actually don’t charge, and that would include Nationwide – again, within Europe only – but there’s also competitive cards including the Post Office, Abbey Zero and SAGA which don’t charge a purchase fee when using it abroad.
Q8: One of the things with Abbey that I think perhaps some people won’t be aware [of], they have announced this week that they are going to rebrand all Abbey and Alliance & Leicester cards under the Santander brand, and as part of that announcement they have said that anyone who uses their cards abroad in June and July I think won’t incur any overseas usage fees - so that’s a nice little perk isn’t it?
PH: It’s most definitely a bonus for the Abbey and Santander customers!
Q9: The other thing you have to be wary of is banks looking at unusual spending habits? We are hearing an increasing number of people who find that they’re stuck abroad because they are assuming that they can use their credit or debit card then suddenly the transaction is blocked. What is the advice there?
PH: I think as, in the current environment, as the banks check your purchase behaviours more frequently, a recommended thing has to be to tell your bank that you’re actually going abroad and also provide them with some dates and locations as well.
Q10: Because if you don’t, you risk being stuck with no access to money…
PH: And we see increasingly a number of people having to suffer that as well.
Q11: It happened to me actually last year in the States - the last thing you want to be doing is ringing the bank when you are thousands of miles away trying to get this block lifted…
PH: And cause some unneeded stress I think Clare!
Q12: And expense for the cost of the phone call! The other thing that is becoming increasingly popular is the prepaid card; can you explain what these are and how they work?
PH: Yes, prepaid cards are commonly referred to as a pay-as-you-go credit or debit card. So what you’ll do is you’ll actually load a balance onto the card and then you have the ability to be able to withdraw at an ATM or purchase goods and have the full chip and pin security as well.
Q13: But obviously you can only pay with what’s on the card, you can’t sort of go overdrawn on it or anything like that?
PH: Yes, you will never go into a negative balance with a prepaid card.
Q14: And one of the other advantages of them is that you are not credit-checked when you apply so – if you have left it to the last minute and don’t have time to apply for a new credit card – you can order a prepaid card and it will arrive within days won’t it?
PH: Yes, that’s right. If there’s a worry you won’t get a credit card, it’s very easy – it’s a simple ID check, and it’s very, very straightforward.
Q15: And what are the loading options, can you do it online or..?
PH: You can do it online. Some providers now offer a text message facility, and you can also pay over the phone as well, so there are various options depending on how you want to reload your prepaid card.
Q16: And are there any charges or fees to watch out for?
PH: There are, it’s well worth checking the terms & conditions of the individual provider to ensure that you’re reloading your card in a cost effective manner.
Q17: A lot of the cards are perhaps slightly more restricted then you might think because they are either available in Euros or Dollars, most of them, so its fine if you are heading to Europe or the States, but if you are going to another country it might not be a viable option for you?
PH: Yes, it’s very much the core countries. I believe there probably is an intent to roll out to some of the other currencies around the world, but then I suppose 80% of people going on holiday will be going in Europe - but it’s something to bear in mind if you’re going to multiple countries.
Q18: There is one – is it Caxton FX - which provides a global card?
PH: That’s right, yes.
Q19: But again there are charges with that?
PH: There is a foreign transaction fee on that product as well.
Q20: And what about cash, because we mentioned at the beginning that obviously is it advisable to have some change on you for small things, but the golden rule there is not to exchange your money at the airport isn’t it?
PH: Yes the rates available at the airport actually are more expensive than what you can get elsewhere, and what you’ll see is even if you compare online and then buy at the airport, the rates you get online are very much different to what you’ll pick up from the airport. So the more preparation that you can do, and the more research, the more competitive the exchange rate you’re going to find.
Q21: And online providers allow you to order online and then have it delivered to your home?
PH: They do, and that can be done in anything up to five days, as long as you’re at home!
Q22: Another thing I have been caught out by! I was trying to order some Euros the other night and that is the problem I came across – I was trying to order online and couldn’t find anywhere where I could get it delivered to work or anything like that so I was a bit stuck. Something to sort out before I go on my holiday!
Well, thanks very much Pete for your time!
PH: That’s fine, thank you.