Pack the right credit card before going on holiday

British holidaymakers will incur charges of £759 million by spending £16.4 billion on their credit and debit card purchases and withdrawing more than £6.6 billion in cash whilst overseas this year, according to research from price comparison and switching service uSwitch.com.

This figure is set to increase over the next few months when the recent plethora of sneaky changes for overseas transactions hits consumers in the pocket.

The holiday season is yet another excuse for banks and credit card providers to squeeze more money out of unsuspecting Brits abroad, with at least six providers cashing in over the last few months. This month alone, LV= has announced that they will charge credit card customers a 3% foreign exchange fee from the end of September, ending one of the cards best-selling points as they currently charge no fee in the EU. In addition, HBOS (Halifax, Intelligent Finance and Bank of Scotland) has made a slightly more subtle change by increasing their foreign usage charge from 2.75% to 2.95% next month.

To add to the bad news, Halifax has recently introduced a transaction fee of £1.50 on overseas debit card purchases and withdrawals. This will generate a staggering £43 million in the next year alone. However, for cash withdrawals, Halifax is the only company to levy a flat fee of £1.50 for credit card cash withdrawals which is more cost effective than many providers. Lloyds TSB and Goldfish have also increased their loading fee for overseas transactions on debit cards from 2.75% and 2.99% to 3% respectively. Finally, RBS and NatWest have both increased their transaction fees from 75 pence to £1.25 on their debit cards and the maximum fee for cash withdrawals has risen from £4 to £5.

Mike Naylor, Personal Finance Expert at uSwitch.com comments: “Holiday spending can be difficult enough to budget for at the best of times, without the bill creeping up by way of these hidden charges. It is possible for consumers to reduce the amount they will pay in fees, or avoid paying them altogether, if they take a little time to research the credit card market before going away and make sure that they are packing the right plastic. In the long term, it may end up being more sensible for them to have two separate credit cards - one for UK use and one specifically for using abroad.”

Cash withdrawal fees

Over the past 18 months there have been significant cash withdrawal fee increases from the majority of credit card providers. Customers with the leading card providers including NatWest, The Royal Bank of Scotland, MINT, HSBC and Sainsbury’s Bank can now expect to face a typical charge of 2.5% or a minimum charge of £2.50 for each cash withdrawal they make abroad this summer on their credit cards. This amounts to an average increase of 0.50% since July 2006 when charges stood at an average of 2% - with a minimum charge of £2.00.

Other providers including Capital One, Egg, British Airways and MBNA have gone even further by upping cash withdrawal fees to 3% with a minimum charge of £3.00. Foreign usage loading fees are also on the rise with MINT having increased its fees from 2.65% in 2006 and 2.75% in 2007.

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

Foreign exchange rate loading fees – the average fee is 2.63% in the world and 2.60% in Europe, this is added onto 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 2.38% and is charged on credit card cash withdrawals made overseas by most companies.

Additional transaction fee on purchases

Alongside these charges, Lloyds TSB, RBS and most recently Halifax customers will also have to pay an additional ‘transaction fee’ of £1, 0.75p or £1.50 respectively, every time a debit card purchase is made overseas.

Dynamic currency conversion

When spending on plastic abroad, consumers should also watch out for Dynamic Currency Conversion. This 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.

Section 75 of the Consumer Credit Act

Finally, consumers should be mindful of the benefit of paying via a credit card as purchases are covered by Section 75 of the Consumer Credit Act. 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.

Naylor concludes: “As a nation we now prefer to pay with our plastic rather than use cash. Consequently, when we go abroad most of us will not give it a second thought when taking out a credit or debit card to pay the bill. However, at the very least consumers should make sure that they are fully aware of the additional charges involved when they use their card overseas, so that they are prepared when these unwelcome fees appear on their statement.”

Solution

Consumers wishing to escape the charges imposed by their providers should consider switching to Nationwide. The Nationwide debit card offers a good solution for spending abroad as it does not charge any fees on cash withdrawals or purchases on foreign transactions.