Holidaymakers hit by foreign usage charges
Holidaymakers face a penalty up to 3% every time they use their credit and debit cards abroad as foreign usage charges get more expensive.
Figures from data provider Moneyfacts show that while most credit and debit card providers used to charge customers around 2.75% for making purchases abroad, rates are now creeping upwards.
Goldfish credit card customers now face paying a 3% penalty, while those with Alliance & Leicester credit cards will have to pay 2.99%. Halifax also recently increased its credit card foreign usage charge to 2.95%.
Charges on debit cards can also hit holidaymakers hard, especially those withdrawing lots of small amounts of cash. Moneyfacts estimates that every £100 taken out on an Alliance & Leicester card will cost £4.95, while spending £100 on a Halifax card will cost £4.25.
Michelle Slade, analyst at Moneyfacts.co.uk, says: “With travellers cheques becoming rather old fashioned now, more people are resorting to using their credit or debit card when they go abroad. But these people need to make sure they are aware of the additional charges they will face for using their cards in a foreign country.”
Nationwide is the only debit card provider that does not charge its customers anything for using their cards to make purchases abroad. Neither Coventry Building Society nor Yorkshire Bank charge their debit card customers a cash or retail conversion fee, but both institutions charge a transaction fee.
For credit cards, both Nationwide and the Post Office waive foreign conversion and transaction usage fees for purchases. However, customers will face a charge for withdrawing cash while on their foreign holidays.
The only credit card to offer fee-free purchases and cash withdrawals abroad is Abbey’s recently launched Zero credit card. The card also offers customers six months of interest free credit and waives fees balance transfers.
Roger Lovering, managing director of Abbey’s credit card business, says: "Abbey Zero is the only one of its kind and it's not just an acquisition offer - the fee-free offering applies on an ongoing basis on this card and we're extending the fee-free foreign exchange to existing customers for summer too."
A spokesperson for MoneyExpert.com adds: "This is the only card on the market which won't penalise you for taking out cash abroad and could be a valuable addition for holidaymakers. The interest free credit on purchases will also mean you can stave off the interest bills from your holiday until Christmas if you splash out while on holiday."
If you want to save on your holiday, then you could consider a new cashback card from American Express that enables users to collect points that can be redeemed against any travel related purchase including flights and hotels.
Every £1 spent on the card earns you one point. And for every 4,000 points earned, customers will be given a £50 saving against their travel purchase – equal to a 1.25% cashback. There are no limits on the number of points that can be earned and points have no expiration date. The Blue Sky Card also provides £500 protection for missed flights, £200 for lost luggage and £100 for journey delays.
The card has a 0% APR on purchases for six months, after which it reverts to a typical APR of 17.9% APR variable.
Remember though, if you plan to use this card abroad then you face a foreign usage charge of 2.73% for purchases and 3% for cash withdrawals.
Around 74% of travellers use cash while on their travels, but if you are planning to change your currency at the airport, then beware. Research shows you could end up paying up to 11% more by waiting then if you bought in advance online or from the high street.
According to pre-paid currency card provider FairFX.com, Luton, Newcastle, Liverpool, Leeds, and City are UK's most expensive airports for foreign currency purchase.
Indeed, many travel money providers claim they offer travellers 0 per cent commission but, as the FairFX.com analysis shows, this hides the true margins they add to wholesale currency rates when providing foreign exchange for travel purposes.
Stephen Heath, Chief Executive of FairFX.com, says: "Most providers rely on the fact holidaymakers will be in a complete rush when preparing for a trip abroad, and either fail to organise currency before they get to the airport or opt to use credit or debit cards for their foreign spending.
“Our analysis shows to what extent this approach could be costing travellers dear.”
Issued by a bank as part of a current account and, in a nutshell, serves as electronic cash. Unlike a credit or charge card, where you get an interest-free period before you have to settle the bill, the funds spent on a debit card are withdrawn immediately from your current account. Unless you’ve arranged an overdraft, if you don’t have the cash in the account, you can’t spend it.
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.
This is a mutual organisation owned by its members and not by shareholders. These societies offer a range of financial services but have historically concentrated on taking deposits from savers and lending the money to borrowers as mortgages, hence the name. In the mid-1990s many societies “demutualised” and became banks. One academic study (Heffernan, 2003) found demutualised societies’ pricing on deposits and mortgages was more favourable to shareholders than to customers, with the remaining mutual building societies offering consistently better rates. In 1900, there were 2,286 building societies in the UK; in 2011, there are just 51.
This is used to compare interest rates for borrowing. It is the total (or “gross”) interest you’ll pay over the life of a loan, including charges and fees. For credit cards where interest is charged at more frequent intervals, the APR includes a “compounding” effect (paying interest on interest). So for a credit card charging 2% interest a month (equating to 24% a year), the APR would actually be 26.82%.