Card providers scrap fee-free overseas deals
Nationwide is to scrap its fee-free policy on foreign transactions for both its credit card and debit card VISA customers.
For some time, the building society has been one of just a handful of card providers to waive currency conversion charges when customers use their cards abroad. For this reason, its debit and credit card offerings have long been recommended to people who want to withdraw money or make purchases on plastic while abroad.
However, from 1 May Nationwide will start hitting credit card customers with a foreign exchange fee when they use their plastic outside the UK or Europe, while debit card customers have until 1 June before they have to pay this charge. It is estimated that over one million customers will be affected.
The foreign exchange fee, which is charged to card providers by VISA, is currently 0.84% but will rise to 1% in July. After this time, Nationwide customers will have to pay £1 for every £100 withdrawn or spent while outside of Europe.
In addition, Nationwide’s VISA credit card customers will also have to pay the charge if they make purchases from websites based outside of Europe.
Thomas Cook, the Post Office and Abbey, through its Zero Card, all used to waive foreign exchange fees.
However, from 18 April, Thomas Cook will start charging its customers a foreign exchange fee of 2.99% and Abbey has now withdrawn its offering.
A spokeswoman for Abbey says it has pulled the deal because, in the current economic climate, customers’ priorities have changed. It has replaced the popular deal with a new 0% balance transfer credit card and also intends to re-introduce the Zero Card in May.
Until then, only the Post Office continues to spare customers foreign transaction fees when they use it overseas.
Lynsey Hallam, a spokeswoman for Nationwide, says the decision to start passing on currency conversion fees to VISA credit and debit card customers was made in order to secure the long-term sustainability of its offerings.
She adds: “We are still one of the few providers not to charge customers commission, plus we don’t employ negative payment hierarchy so payments are used to pay off the most expensive debt first. When you look at what other providers charge customers, Nationwide continues to offer an attractive proposition.”
Credit card providers charge, on average, 2.75% per transaction when customers pay for goods and services while abroad.
Sam Owens, head of credit cards at data provider Moneyfacts, says the move by Nationwide is disappointing - especially as in the past it has heavily promoted the fee-free aspect of its cards.
However, she adds: “Unlike many providers, Nationwide is covering its costs rather than making a margin on foreign transactions. It still has a competitive offering. People who want to avoid being charged this fee should look for alternatives now – unfortunately, this market wasn’t very big in the first place and now it is getting even smaller.”
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.
Moving money from one account to another, whether switching bank accounts or more likely transferring the outstanding balance on your credit card to another card that charges a lower – or 0% – rate of interest. Some card providers may charge a transfer fee that can be a percentage of the balance transferred.