Whether you’re preparing to hit the ski slopes or about to book your annual summer holiday, using the right credit card can save you money. Credit card providers charge a raft of different one-off fees when you use your card abroad and interest rates can suddenly climb too. The first port of call is to understand the different charges that may be levied.
Foreign exchange fees
Paying for something in a different currency to UK sterling with your credit or debit card will mean you are subject to the Visa/MasterCard exchange rate. This is a wholesale exchange rate and, in isolation, actually quite favourable.
However, the card provider will then slap on its own ‘exchange-rate loading fee’ – also known as a ‘foreign exchange fee’ or ‘foreign usage fee’. Either way this typically amounts to around 2.75% of the cost of the transaction, so a £100 purchase would cost you £102.75. This fee is something of a snake in the grass as it won’t show up on your statement either.
The only way to avoid paying this loading fee is to find a card that avoids charging it altogether – and thankfully there is a handful on the market. Santander Zero credit card, Saga’s Platinum credit card (for the over 50s), the Post Office credit card and recently-launched Halifax Clarity credit card, all have an exchange-rate loading of nil.
Nationwide is another options as its credit card will apply no loading within the EU and a relatively competitive 1% loading outside of the EU.
Cash withdrawal fees
Withdrawing cash abroad will also cost you a lot more than the money you pull out of the ATM. Cash withdrawal fees are typically charged at between 2.5% and 3% on credit cards but the interest charged will soar – to nearly 28% in some cases – and interest will be applied even if you clear your balance every month.
Only the Halifax Clarity and Santander Zero credit cards do not make any charge for withdrawing cash – though, once it’s in your hand, Halifax charges a much better interest rate of 12.9% opposed to Santander’s 27.9%.
Cash withdrawal fees on debit cards tend to be lower and are often capped to a maximum £5, as is the case with First Direct and RBS. And course, you won’t pay any interest unless you go overdrawn. However, debit cards hide another kind of fee when being used abroad – spending fees.
Spending fees
Spending fees – also known as penalty fees – are flat-rate charges that some banks apply when you hand over your debit card to make a payment overseas. Halifax is the worst offender adding £1.50 per transaction, while other banks such as Santander and NatWest charge £1.25. When you lump this alongside any foreign exchange loading fees, it may work out cheaper to withdraw a larger chunk of cash from the ATM and spend that instead.
The best deal
In short, your best bet is to apply or switch to one of the specialist credit cards – Halifax Clarity, Santander Zero, Post Office or Saga Platinum – but don’t withdraw cash on it.
Furthermore, by using a credit card, you will be covered under the Consumer Credit Act, which means your card provider will share responsibility alongside the retailer for faulty goods, so long as they are priced between £100 and £30,000. You will also be covered if you lose your purchases bought on the card.
Prepaid cards
But if your credit rating is not up to scratch, you could consider a prepaid card. These allow you to load cash onto the card in advance. You can then use the card to spend abroad just as you can with a debit or credit card. However, as the same charges apply, it’s still important to shop around for the best deal. The FairFax prepaid card for example, charges no spending or foreign usage fees, and can be topped up free-of-charge by debit card or bank transfer.
Watch out for dynamic currency conversion
Even when you are armed with the best plastic on the market on your holiday, it’s still possible to slip up. Sometimes for example, you will be given the choice in a shop, bar or restaurant, to pay in pounds. But while this may sound more familiar and easier to budget, politely refuse. This is called dynamic currency conversion and means that the shop does its own sums on the exchange rate, rather than your card provider – which will almost always work out more expensive.
