Picking the wrong plastic to use while on holiday abroad this summer could prove a costly mistake, but the good news is that there are a growing number of fee-free debit and credit cards available.
App-based banks such as Monzo, Starling and Tandem are providing an alternative to the excessive charges often imposed by the big banks when you use their cards for purchases and withdrawing money overseas. Meanwhile, some established names, such as Halifax and Barclays, offer credit cards that can help you avoid being caught out.
Some people who have high-charging cards may feel they can’t be bothered to take out another card or open a current account simply to avoid the fees, but if you are heading off in July or August, it’s not too late to apply for a card that can enable you to escape unnecessary charges and poor exchange rates.
With contactless card usage growing rapidly in France, Spain and other countries, it is important for holidaymakers to be aware that with some cards, making lots of small wave-and-pay purchases – a slice of pizza here, a beer there – can end up generating a big bill. That’s because some cards apply a purchase fee on each transaction, which is in addition to the “currency conversion” – or non-sterling transaction fee – imposed when you buy something in anything other than pounds.
Financial information firm Defaqto warns: “Using a debit card for small payments, such as contactless to buy a coffee, can be very expensive.”
It adds that a daily €5 (£4.37) breakfast of a coffee and croissant over a fortnight could end up incurring up to £21 in fees, on top of the £61 total cost of the breakfasts.
For example, with Santander’s debit card, each one of those €5 breakfasts would cost you an extra £1.37, made up of a £1.25 “purchase fee” and 12p currency conversion charge per transaction.
Meanwhile, watch out for cash machine charges. For example, some banks, including NatWest and HSBC, charge their standard current account holders £9.50 for a £200 withdrawal from an overseas ATM.
One of the big problems for consumers is that the fees for using plastic abroad are often complex.
Charges at shops and restaurants
Most people using a debit card from a major UK bank to pay for purchases overseas will typically be charged a little under 3% for the privilege in the form of a non-sterling transaction fee. For standard current account holders at Barclays, HSBC, NatWest and Santander, it is 2.75%, while at Lloyds and the Halifax it is 2.99%.
Some debit cards come with an extra sting in the tail in the form of a purchase fee, which is in addition to the non-sterling transaction fee. This charge is £1.25 at Santander, £1 at TSB and 50p at Lloyds and Halifax (though some accounts at banks are exempt). Avoid using these cards if you make lots of small payments.
Charges for using ATMs
The majority of Britons using a debit card at a foreign ATM will be charged a 2.75% or 2.99% non-sterling transaction fee. In the case of Barclays, HSBC and NatWest, the typical charge is 2.75%, while at Lloyds, Halifax and TSB it is 2.99%.
On top of that there is often a separate ATM fee, which is sometimes expressed as a percentage of the amount taken out. At Barclays, Lloyds and Halifax it is £1.50, at TSB it is 1.5% and at HSBC and NatWest it is 2%.
Watch out for ATM providers applying their own charges too.
Cutting costs with the new players
There are a number of cards that won’t charge you a penny in foreign exchange fees or other bank charges when you use them in shops, hotels and restaurants, or to withdraw money from cash machines. This is one of the areas where the hi-tech new arrivals to UK banking are making a name for themselves.
Monzo is particularly popular among the under-30s. It started out offering a prepaid debit card before switching customers to a full current account. Payments abroad are free, with no added fees. If you are taking out cash overseas, you can withdraw up to £200 from ATMs in any 30-day period without fees. After that, Monzo charges 3% of the total amount you withdraw above £200.
Starling also offers a mobile-based current account that comes with a debit card. It won’t charge you to use your card abroad or to withdraw cash from ATMs.
Tandem offers a cashback credit card that has no fees for making purchases or withdrawing cash abroad. Cardholders earn 0.5% cashback on purchases anywhere in the world.
Similarly, Revolut, which launched in 2015 and markets itself as a “banking alternative”, offers a free current account with a card that customers can use overseas in more than 150 currencies with no fees. They can also withdraw £200/€200 per month free from ATMs, or £400/€400 per month if they sign up for Revolut’s £6.99-a-month premium account.
Then there is the Loot current account, which offers a card you can use in more than 210 countries without fees. Overseas ATM withdrawals are free for the first two each month, then £1 per use.
Other options for cutting costs
In terms of other banks, Metro offers a decent deal: you don’t have to pay any fees when you use its debit card to make purchases or withdraw money in Europe.
And the Cumberland, a building society based in Carlisle, has a current account where you can use your debit card for free worldwide. But to apply, you have to live within its branch operating area.
There are also several fee-free credit cards from traditional players. Halifax Clarity is one of the best-known and has no usage fees however you use it. Whatever you spend abroad is converted to sterling at a rate set by Mastercard. Halifax is currently running a £20 cashback promotion to tempt people to sign up before 31 August.
Other credit cards that have no fees on purchases and/or cash withdrawals abroad include Santander’s Zero, Creation’s Everyday, Barclaycard’s Platinum Travel (with this, there are no fees on spending and withdrawals until 31 August 2022), Nationwide’s Select and Virgin Money’s Travel card.
Prepaid currency cards
These are another option for people who want to budget on holiday or avoid taking cash. They are loaded with the foreign currency of your choice, so you can only ever spend the balance on the card and it can be topped up on the go.
However, Defaqto says many prepaid cards have high fees or other catches, such as loading or renewal fees. It adds that many of them cannot be used for car hire, and customers might also have difficulties at places such as petrol stations.
Your travel money checklist
• If you’ve still got several weeks to go until you set off on holiday, consider applying for a fee-free card or account in time for the summer.
• If that sounds like too much aggravation, or you haven’t got time, check the overseas charges that apply to your debit/credit card before you set off. At least if you are aware of the costs you face, you can adapt your spending accordingly.
• Think about a prepaid currency card. These can be a good option for people on a tight budget or who don’t want to carry lots of cash. But it’s vital to check the fees and charges that apply.
• If you plan to take some foreign currency with you, use a site such as TravelMoneyMax. It lets you put in your postcode and find the cheapest deals near you.
• If you’re picking up a hire car, make sure your credit card has enough credit. Car hire desks will often seek to block a sizeable sum on your card for the duration of the rental if you don’t buy their excess insurance.
• When paying by card overseas, watch out for the dynamic currency conversion trick at restaurants, shops, hotels and so on. The general advice is to always pay in the local currency.
• When using ATMs on holiday abroad, it’s usually better to make one or two larger withdrawals rather than lots of smaller ones.
Buying before you go
Want the security of some euros in your hands before you go abroad? Whatever you do, don’t pop into your local bank – they are nearly always the most expensive way to change money – and never use an airport exchange desk unless you are desperate.
The general rule of thumb is that those tatty-looking bureaux de change near train stations are the best value, while outlets in the likes of Tesco, Marks & Spencer and Debenhams offer rates significantly better than high street banks. And if you must use airport bureaux, at least book the money in advance for collection.
You have three options: delivery to your home, collection from a bureau or changing at the airport, and each one offers different rates.
A useful starting point is the TravelMoneyMax website by MoneySavingExpert, which lets you compare providers and put your postcode in to find the best local suppliers.
This is a sensible option for those living some distance from a bank or bureau de change, although delivery fees make it better value for large amounts of currency. According to TravelMoneyMax, the best value for delivery when Guardian Money checked earlier this week were BestForeignExchange.com and TravelMoneyClub.co.uk. They would give us around €566 for £500, delivered to our door.
For those who want the security of a big-name firm, Tesco Bank scores highly. The supermarket group would give us €561 for our £500, including next-day delivery. It also lets you collect the foreign currency at any of 400 stores. If you are buying less than £500 worth of foreign currency, there’s a delivery charge of £3.95.
Sainsbury’s Bank, Asda and Debenhams were not far behind Tesco in price. By comparison, even the best high street bank offer, from HSBC, left travellers £15 worse off than Tesco when changing £500.
This is where city centre bureaux de change offer the best value. In our test to change £200 into euros, we were offered €226 on the day at Ice, Thomas and Best Foreign Exchange bureaux across London. Debenhams was not far behind at €225, while Tesco and Asda offered us €224.
At the airport
The walk-up exchange rates at airport bureaux de change are poor. A bureau at Cardiff airport had the dubious honour of recording the worst exchange rates for holidaymakers last summer after sterling dipped heavily against the euro follwing the Brexit referendum.
When Guardian Money spoke to Forexchange at Cardiff airport this week, it said it would offer just €0.91 for each £1.
At Gatwick airport, rates are a little better: Moneycorp told us that it would give €0.96 per £1 for walk-up customers. In other words, if you were changing £500 at Gatwick you would receive just €480 – €86 less than the best rate we were able to get by planning ahead.
Both Forexchange and Moneycorp workers at the airports told us it was far better to go online to their sites a day or two before travelling and book the money to collect at the airport. The rate customers would get by doing this would be closer to €1.10 per £1.
Beware bad conversion rates
If you have not ventured abroad for some time, you may be surprised at the number of hotels and restaurants (and even ATMs) that ask customers paying by card whether they would like to be billed in sterling rather than in the local currency.
The option is typically presented on the card terminal and users must pick which currency they wish to be billed in before keying in their pin.
These businesses are not being helpful – in most cases they have introduced “dynamic currency conversion” to make extra money by offering you a less favourable exchange rate than you would get from your bank or card provider. If you choose sterling, the charge is often 4% more than it would have been and is on top of any normal fees your card provider levies.
The practice is particularly prevalent in Spain, but is seen across Europe and further afield. It is now routine at many ATMs too.
In almost every case, consumers opting to pay a hotel bill in pounds rather than the originally quoted euros (or other currency) will pay more by accepting the converted amount. The advice is to always pay in the local currency.
A few years ago, some restaurants claimed you could only pay in the converted currency, but this appears to have been outlawed. You are within your rights to insist on paying in the local currency and should refuse to go ahead if you are not offered the choice.
- Pound nears ten-year low against the euro as No Deal Brexit looms
- Pound hits six weeks high against euro and dollar after DUP considers giving Boris Johnson a Brexit lifeline
- Sterling bounces back against euro and dollar ahead of today’s Brexit vote
- Budget hen party destinations for every bride-to-be
- This Is What Black Burnout Feels Like
Holiday money: how to find the best cards and currency rates have 2196 words, post on www.theguardian.com at June 23, 2018. This is cached page on Europe Breaking News. If you want remove this page, please contact us.