Brits abroad stung with millions in credit card charges

British holidaymakers will be charged £355 million when they use their credit cards overseas this year, according to new research from uSwitch.com, the independent price comparison and switching website.

uSwitch.com estimates that UK consumers will be charged £204 million on credit card purchases and £151 million withdrawing foreign currency with their credit cards from cash machines.

Banks and credit card companies hit consumers each time they use their cards to make purchases and withdraw cash overseas with the following charges:

Exchange-rate loading fees – the average fee is 2.61% in the USA and 2.59% in Europe, this is added on to credit and debit card transactions (purchases and withdrawals) made overseas by most credit and debit card companies. Providers also call this an ‘exchange rate administration fee’ or ‘exchange rate adjustment charge’.

Cash withdrawal fees – the average fee is 2.30%, and is charged on credit card cash withdrawals made overseas by most companies.

Nearly all of the major providers charge both of these fees on their debit and credit cards – including, The Royal Bank of Scotland/NatWest, HSBC, Lloyds TSB, and Barclaycard. Nationwide and the Post Office are notable for not charging exchange-rate loading fees at all.

Alongside these charges, Lloyds TSB and RBS customers will also have to pay an additional ‘transaction fee’ of £1 or 0.75p respectively, every time a debit card purchase is made overseas. This may not seem like a huge amount but given Lloyds TSB’s current account market share, uSwitch.com estimates that this generates around £25 million in revenue every year.

Nick White, Director of Financial Services at independent price comparison and switching service uSwitch.com, comments: “There are several factors for consumers to take into account when using cards abroad. Your existing debit and credit cards may not always offer the best deals for overseas cash withdrawals and purchases, so some forward planning could avoid these charges altogether. In the long term, it may end up being more sensible for some consumers to have two separate credit cards - one for UK use and one for overseas.

“For example, the Post Office ‘2 in 1’ credit card is a good bet as unusually it doesn’t charge exchange rate loading or transaction fees when used overseas. Nationwide’s debit card is the best solution for spending abroad, as it doesn’t charge cash withdrawal, transaction or exchange-rate loading fees on foreign transactions.

“The benefit of paying by credit card is that purchases are covered by Section 75 of the Consumer Credit Act for purchases both in the UK and overseas. This valuable benefit means that if goods or services costing more than £100 and less than £30,000 are faulty or not as they were described, consumers can recover the cost from their credit card provider or from the retailer.”

When spending on plastic abroad, consumers should also watch out for the following:

Dynamic Currency Conversion

Dynamic currency conversion is when retailers overseas convert purchases into sterling instead of using the local currency and charge a fee of up to 4% on top. Consumers should watch out for this and insist that the local currency is used or pay in cash instead.

Nick White concludes: “It makes sense to take several methods of payment when you travel abroad. Take more than one credit or debit card in case one stops working and take some local currency as well – although check how much cash is covered on your travel insurance. Paying by credit card also gives you valuable protection under Section 75 of the Consumer Credit Act.’

Top tips for using credit cards abroad from uSwitch.com:

Switch to a credit card with lower charges, like Post Office or Nationwide

Watch out for fees for withdrawing cash on your credit card abroad

Pay off cash withdrawals as quickly as possible as higher rates of interest apply. You will also normally be charged interest on cash withdrawals even if you pay your credit card bill in full, as unlike purchases, there is normally no interest-free period

If you don’t repay your holiday spending when you get back, transfer it to one of the many cards offering 0% introductory interest rates on balance transfers, or to a card that offers a low interest rate for the life of the balance (until the debt is repaid)

Watch out for retailers overseas converting purchases into sterling and adding a fee of up to 4% on top

Before you go abroad, look at what your card provider’s policy is with regard to lost and stolen cards. Take their contact details with you in case you need to get in touch

Check the expiry date on your card and make sure it doesn’t expire while you are away

Keep an eye on your spending and credit limit to avoid fees for exceeding your credit limit