The Cost Of Using Your Cards Abroad

Using a credit or debit card abroad is going to cost you more than if you use cash. UK banks are charging increasing fees when customers use their cards overseas. In addition overseas retailers are now encouraging more customers to pay in sterling – usually at a very poor exchange rate.

This year Britons abroad will spend around £25bn on cards. Hidden fees and exchange rates will add another £500m. Nearly every credit card provider adds an exchange rate loading of between 2.5% and 3% for foreign currency transactions. Fees have crept up in the last year or so.

Last month Lloyds TSB increased the cost of using its debit cards from 2.75% to 2.99%, and it charges £1 on top as an overseas transaction fee. Lloyds’ claim that the increase in overseas card charges is to help pay for tighter anti-fraud controls.

NatWest’s overseas loading has gone up from 2.65% to 2.75%, and its debit card transaction fee has gone up from 75p to £1.25. HBOS has raised its international fee on credit cards from 2.75% to 2.95%.

Use of a cash machine is also expensive as banks now typically add a standard exchange rate loading to any cash withdrawal, and most add a service fee as well. Cash withdrawals from the big banks are around 3% with a £2 minimum charge. One exception is Nationwide which has no exchange loading on its cards and charges no fee for cash machine withdrawals.

‘Dynamic currency conversion’ (DCC) are increasingly being used by foreign retailers, who offer to convert the bill into sterling. Although UK customer can see what the price is in pounds and pence, the exchange rates can be as high as 3% more than those used by credit card providers. Dynamic currency conversion rates are set by the merchant and their bank. MasterCard and Visa say that customers must be given a choice of whether to pay in sterling or local currency and the exchange rate must be stated.

Prepay travel cards are the same size and shape as a credit card, with a Visa, MasterCard or Amex logo, and you load these up with dollars or euros before going away. Although there is a mark-up on the exchange rate for loading, there are no other charges on purchases. For a small fee these can also be used in a cash machine. These cards can act as a ready-made budget for your trip as you can load the amount you want to spend before you go.

Although most foreign currency exchange bureaux no longer charge commission, it is worth shopping around as there can be big variations in the exchange rates used. On a £200 exchange this can be as much as £33. You can buy foreign currency online, but you should compare delivery charges if you do. In addition, you should note that paying for currency with a credit card counts as a cash withdrawal, which means the card company will charge a cash-handling fee and interest immediately.

Tom Smith
24th August 2007