The pros and cons of currency cards
With spring in the air, it's a good time to start looking forward to any summer trips you have planned. But before you start counting down the days, make the most of the time you have left to ensure your holiday will be as stress free as possible.
For a start, getting the right travel insurance to cover your trip is crucial, but you also need to organise your travel money and make sure you get the best deal available.
Generally speaking, you are best to opt for a mix of different payment methods, including cash traveller's cheques and plastic. However, there are disadvantages to each of these - cash is risky, credit cards can carry high charges and travellers' cheques tend to have uncompetitive exchange rates.
An alternative - or addition - to all these payment methods is a pre-paid currency card. More commonly used by Americans, these cards are growing in popularity with Brits as their security benefits, convenience and generally low charges become better known.
What are they?
Pre-paid card can be loaded with currency and used at cash points or to make payments in restaurants and shops. They are issued by Visa, MasterCard and Maestro and come in all currencies, with specific cards for euros and US dollars.
Keep in mind that not all pre-paid cards are designed for overseas spending. If this is your primary purpose, look for a provider that has a specialist currency card in its product range.
One of the best things about pre-paid currency cards is the ability to top up over phone, internet and often by text. When you apply for the card you will normally be asked to give a linked current account and money is taken directly from there as and when you ask for it.
Another benefit many providers offer is a secondary or 'companion' card, which you can register with a family member or friend. This means somebody else can top up the account if needed.
As with cash, loading up a pre-paid currency card involves converting sterling into your chosen currency; you will therefore be subject to the exchange rate offered by the provider. Check its policy on this and whether the exchange rate is locked in when you load the card, or if the exchange rate is calculated on each transaction.
The option to lock in the exchange rate could be particularly useful if you expect the rate to be less competitive down the line.
Paying or withdrawing money using a pre-paid currency card is similar to using a debit or credit card. You will be issued with a PIN number and your card can be used wherever you see the Visa, MasterCard or Maestro sign (depending on the type of pre-paid card you have).
Because there is no element of borrowing when it comes to using a pre-paid currency card, you will not be subject to any credit checks. This makes them particularly popular with young people who may not have enough of a credit history to be approved for a credit card.
Pre-paid currency cards are also ideal if you want to make sure you don’t overspend while on your trip. But because you can top them up at any time (provided you have access to the internet or a telephone) you don’t have to worry about running out of cash either.
There is also the issue of security. If your wallet is stolen while you are on your travels, you will have to write-off any cash unless this is protected by your travel insurance.
Credit and debit cards offer more protection, but you could see your current account wiped out or a huge credit card bill racked up if you don’t cancel these in time. While you should be able to get some - if not all - of your money back, you may have to wait for this (see below).
In contrast, if thieves get hold of your pre-paid card, you only risk losing the money on it. Some providers also offer protection against theft, ensuring you get a replacement card and your money back. However, this is likely to take time and you could also be charged for a replacement card.
Another benefit of a pre-paid currency card, which is likely to appeal to many people considering the current climate, is the exchange rates they offer. Generally speaking, it is possible to get a better exchange rate on a pre-paid card than by changing cash.
Peter Harrison, head of travel money at Moneysupermarket.com, says: "Pre-paid cards consistently offer great foreign exchange rates and are available to everyone. So, not only could you get more euros and dollars for your sterling, but you can also make sure you don't go overboard on your holiday budget."
Some pre-paid currency card providers also waive overseas charges – these are the fees that banks, building societies and credit card providers levy on customers for using their cards abroad. However, this will vary from one pre-paid card provider to the next. Which brings us on to the disadvantages…
The biggest disadvantage of pre-paid currency cards are their fee and charge structures, which vary massively and can cause confusion and make comparisons difficult.
Pre-paid cards are not necessarily free; some providers will charge a one-off application charge while others levy a monthly fee. Furthermore, some cards charge a fee when you use them to make a purchase or withdraw money.
However, there are some exceptions. Caxton FX waives ATM fees on both its global and euro/dollar cards, and it doesn’t apply any overseas charges when you use it outside of the UK. This card is also free to take out, although there is a replacement fee of £5.00.
Another good deal is currently available from Escape Travel Money MasterCard, which charges a £9.99 deposit that is then refunded when you load £100 onto it. It has no ATM charges at home or abroad and no charges when using it to pay abroad.
There are other fees to watch out for. As well as a fee for getting a replacement card, some providers will charge when you top-up the card or renew it.
Finally, Travelex (which also provides currency cards for Thomas Cook and the Co-Op) levies a monthly inactivity fee of £2 if you don’t use a card loaded with currency for more than 12 consecutive months.
Ricky Bruce, a researcher at data provider Moneyfacts, says: “Pre-paid currency cards can be hard to compare because of the different fee structures. To make sure you don’t get stung, you should read the terms and conditions of a card carefully and make sure you get the right one for your needs.”
Fees aren’t the only disadvantage of pre-paid currency cards. For some people, they are more complicated than taking cash or spending on credit or debit and putting up with the charges.
In addition, bear in mind that some providers will limit how much money you can put on your card; while you may be able to top this up during your trip, a lack of internet access or security concerns might make this difficult.
Finally, there is the issue of protection. Section 75 of the Consumer Credit Act protects goods or services paid for on credit card between £100 and £30,000; this means the credit card provider is jointly responsible with the supplier if the goods are faulty or incorrectly described, or the service you receive isn’t up to scratch.
If the company you are buying from goes bust, you can also claim back your money for breach of contract.
Section 75 didn’t used to apply to overseas transactions, but this is no longer the case. In 2006, the Court of Appeal overturned a previous court decision, which stated section 75 does not cover purchases and transactions made outside of the UK.
However, Emma Parker, spokeswoman for the Financial Ombudsman Service, says the current legal position is that there should be no difference between UK and foreign credit transactions when it comes to the protection offered by section 75. This means that credit card providers must uphold this when dealing with problems.
Sadly, pre-paid currency cards are not protected by section 75, because the Act only covers money that is 'credit' rather than belonging to you. This could leave you at risk when you use currency cards on your holidays.
On the plus side, if your currency card is issued by a bank it should be covered by the Banking Act. If you are a victim of fraud while abroad, you should therefore be able to reclaim your money back as long as you weren't negligent with your PIN or personal information.
If you’ve have a complaint about a financial service product you have bought but the company you bought it from refuses to resolve your problem after eight weeks, the Ombudsman can help. The Ombudsman will investigate and resolve the matter. The Ombudsman is independent and its service is free to consumers. The Ombudsman may find in the company’s favour but consumers don’t have accept its decision and are always free to go to court instead. But if they do accept an Ombudsman’s decision, it is binding both on them and on the business.
The difference between two currencies; specifically how much one currency is worth relative to each other. For example, if £1 is worth $1.50, converting sterling to US dollars, the exchange rate is 1.5. Converting dollars to sterling at those levels, the exchange rate is 0.66, so $1 is worth 66p. There are a wide variety of factors that influence the exchange rate, such as a country’s interest rates, inflation, and the state of politics and the economy in that country.
An account opened with a clearing bank (few building societies offer current accounts) that provides the ability to draw cash (usually via a debit card) or cheques from the account. Some pay fairly minimal rates of interest if the account is in credit. Most current accounts insist your monthly income (salary or pension) is paid directly in each month and they offer a number of optional services – such as overdrafts and charge cards – which are negotiable but will incur fees.
Used by the holder to buy goods and services, credit cards also have a monthly or annual spending limit, which may be raised or lowered depending on the creditworthiness of the cardholder. But unlike charge cards, borrowers aren’t forced to pay the balance off in full every month and, as long as they make a stated minimum payment, can carry a balance from one month to the next, generating compound interest. As the issuing company is effectively giving you a short-term loan, most credit cards have variable and relatively high interest rates. Allowing the interest to compound for too long may result in dire financial straits.