If you’re planning to take off abroad for the summer holiday and plan to use your debit and credit card while away, there’s one costly trick to be aware of before handing over your plastic for payment in shops or restaurants.
Don't pay in sterling
If an overseas retailer offers you the chance to pay in pounds rather than the local currency, just say no.
While it may seem like an appealing proposition as you’ll know exactly how much you’re spending, as a general rule you should always choose to pay in the local currency.
Why? A little trick known as dynamic currency conversion (DCC) means the retailer gets to determine the exchange rate conversion and it’s usually at an unfavourable rate - which means you could end up paying more than you need to.
Price inflation
In fact, this could inflate costs by as much as 5 per cent on the true cost of the transaction.
“When using plastic abroad, you should be asked by the retailer whether you want to be billed in the local currency or sterling,” says David Black from financial analyst, Defaqto.
“You should opt for the local currency because if the retailer converts the currency it will generally use a much worse foreign exchange rate than would be utilised by your card.”
This is a view shared by Chris Rhodes from Nationwide building society.
“Retailers often offer to let you pay in pounds instead of the local currency, but this is sometimes expensive,” he says. “The rule is simple: opt for the local currency over sterling.”
Don’t let sales staff persuade you
There is nothing illegal about DCC, but as the rate of exchange is likely to favour the retailer rather than you, the holidaymaker, it’s in their interest to try and force this on to unsuspecting customers.
The problem is that while cardholders should be given the option of choosing the currency they want to pay with at the time of the transaction, in practice, this doesn’t always happen. Iin these cases, the first thing you’ll know about it is when you receive your card statement.
So it pays to be on your guard and keep an eye out for DCC at the point of sale.
Don’t get stung by hidden fees
If you plan to use your plastic overseas, you need to watch out for a range of other fees besides DCC.
When a card is used for purchases, there is typically a “foreign exchange rate loading fee” of up to 3 per cent, and with debit cards some banks levy an extra fee of up to £1.50 per transaction on top of that.
Travellers can also face hidden charges of up to 2 per cent for withdrawing money abroad using a debit card.
The good news is, there are certain cards that do not levy overseas charges.
For credit card users, these include the Halifax Clarity, Metro Bank and Sainsbury’s Gold cards.
For debit card users, these include Metro Bank, Norwich & Peterborough’s Gold current account, and Santander Zero.
Opt for a prepaid card
Another way of avoiding getting stung by credit and debit card charges is by taking a prepaid card loaded with foreign currency.
These cards, offered by the likes of FairFX, CaxtonFX and Travelex, can be bought and managed online or from high street locations, and offer the same rates of exchange as buying currency.
They are available in a range of currencies, and as there is no credit or overdraft facility, it’s easier to budget.
Further, if you lose your card, you have the security of knowing it can be replaced, and that your money is not lost.
Inform your bank
Finally, before setting off on your holiday, remember to tell your bank and credit card company that you’re going away. Otherwise they could think the overseas transactions are fraudulent and put a stop on your cards.
Also make sure you have all the necessary contact phone numbers in case you need to cancel any of your cards if they are lost or stolen.
