Brits abroad feel the burn

British holidaymakers will be charged a whopping £686 million for using their cards abroad this year, according to research from uSwitch.com. Credit card customers will be charged £368 million in fees for their purchases and cash withdrawals, while debit card holders will be stung a further £318 million. In total, consumers will make 284 million overseas transactions and spend a collective £23 billion on plastic this year.

Alarmingly, nine banks now levy a charge for every debit card purchase made outside the UK - charging an average of £1.19 which nets the industry £65 million per year. The number of providers who now charge this fee has increased in the last year and could signal the start of a trend that will cost consumers dear if they don’t wise up to these new charges.

Mike Naylor, personal finance expert at uSwitch.com comments: “The ever-increasing plethora of overseas fees and charges on debit and credit cards could leave consumers with a holiday hangover if they don’t do their homework before boarding the plane. Charging a fee for every purchase made overseas on a debit card is a lucrative bandwagon and one that is well worth providers jumping on. The revenue from these charges represents 9.5% of the total income made from fees on overseas transactions. Any consumer who holds a debit card with a bank levying these charges should think carefully before handing their card over the counter whilst abroad. On a two week holiday it’s not unfeasible for someone to pay for 14 meals with a debit card - with a transaction charge of up to £1.50 for each use, the charges could soon add up to £21 with foreign exchange fees on top.”

The most cost effective way to use debit cards abroad for cash withdrawals, is to take out larger sums of money in order to incur fewer withdrawal fees. Cash withdrawal fees represent a percentage of the amount withdrawn (1.5% on average), with a minimum charge of around £1.50 and a maximum of up to £5. However, some banks don’t cap this amount, so consumers need to be wary and find out how much their card provider charges before using their debit card overseas. Using a credit card for cash withdrawals is normally the most expensive way to get hold of cash on holiday, as consumers will normally incur a higher rate of interest on the full withdrawal from the day it is made - on top of the other overseas charges that would normally apply.

Nearly all of the ‘big name’ providers charge exchange rate loading fees on overseas debit and credit card purchases and withdrawals – including The Royal Bank of Scotland, Lloyds TSB and HSBC. Of the providers that do not charge loading fees or transaction fees, Nationwide Building Society and the Post Office are the most notable.

What consumers should know when they pack their plastic:

1. Exchange rate loading fee – the average fee is 2.66% for credit cards and 2.28% on debit cards. This is added on to credit and debit card transactions (both purchases and withdrawals) made overseas by most credit and debit card companies.

2. Debit card purchase transaction fee – 9 debit card providers now levy this fee which is on average £1.19.

3. Cash withdrawal fee – this is a percentage of the withdrawal. On average it’s 1.50% on debit cards and 2.67% on credit cards.

4. Dynamic currency conversion – typically 4%. This is when retailers convert transactions into sterling instead of the local currency. However, they should always ask for local currency to be used to avoid the 4% fee.

Section 75 of the Consumer Credit Act

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 is a valuable benefit - if goods or services costing between £100 - £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: “The exchange rate loading fees levied by banks and credit card providers are too high. At most, it is estimated that the cost to the banks of using our cards abroad ranges from around 1% to 1.5%,which is considerably lower than the current average of 2.66% on credit cards and 2.28% on debit cards. It’s important that consumers are aware of these charges so they can make informed decisions about who they bank with and have a clearer picture of the actual cost of using their cards overseas, making it easier to budget.

“As a nation we now prefer to pay by plastic rather than by 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. This might go some way to preparing them for the shock when these fees appear on their statement when they get home.”

uSwitch.com’s solution

The best thing to do is to either take some local currency with you that has been exchanged free of commission. In addition, people could apply for a Nationwide debit card that doesn’t charge for purchases or cash withdrawals overseas. Finally, Post Office and Nationwide’s credit cards don’t charge exchange rate loadings, but you will be charged for withdrawing cash.

Top tips for using cards abroad:

1. Check how much your bank or credit card company charge when you use your cards overseas. Nationwide’s debit card is the only one that doesn’t charge for making purchases or withdrawing cash overseas. However, although Nationwide and Post Office credit cards don’t charge foreign exchange rate loadings, they do charge fees and interest charges for cash withdrawals.

2. Try to avoid withdrawing cash using your credit card as you’ll be charged a cash withdrawal fee alongside a foreign exchange fee for using a cash machine abroad. You’ll also normally be charged interest from the day you take the money out even if you pay the bill in full as soon as you get it.

3. Consumers will only benefit from Section 75 of the Consumer Credit Act if purchases are made using a credit card. Although banks do not admit liability for debit or charge card purchases, they may consider looking at a complaint as a gesture of goodwill.

4. Always take the contact details for your bank or credit card provider with you on holiday. Keep them in a safe place, not your wallet, so you can call and cancel your cards if they are lost or stolen.

5. It’s a good idea to exchange some money into the local currency using an exchange service that does not charge commission such as Marks and Spencer or Post Office.

6. Some banks and credit card companies ask that you tell them if you are going abroad. This could help to stop them from blocking your cards overseas if they think there are fraudulent transactions on your account.

7. If you have taken out a new card, memorise the pin. Do not keep the number in the same place as your cards.

8. Always check your statement when you return from holiday to ensure there has been no fraudulent activity or spurious charges added.