Banks slammed for extortionate foreign transaction fees

family holiday

Banks are hitting holidaymakers with an ‘extortionate’ charge of almost 5% for withdrawing money abroad by using a confusing double-fee policy on debit cards. 

Barclays, HSBC, NatWest and First Direct all charge 2.75% for the currency exchange plus a 2% ATM fee on top for their current accounts. So if you withdraw £100 from an ATM you will be stung by a hefty £4.75 fee.

Santander charges 1.5% plus 2.75%.

Until recently, the Nationwide FlexAccount was the exception to these high-charging banks, as it was the only one to provide a debit card with no fees attached when using it in the EU.

However, from 1 November there will be a cost of 2%, plus a £1 cash withdrawal fee, with this account.

Banks are also slow to own up to their double-fee policy and provide misleading information, according to research from our sister publication Money Observer.

When asked about its fees, Santander has on several occasions outlined only one of its charges, instead of the two fees it charges on all of its current accounts.

In addition it’s hard to locate the exact fees on banks’ websites and very rarely do they state the exact amounts associated with withdrawing, anywhere other than in the small print.

James Hickman, managing director at prepaid card company Caxton FX, suggests the banks have increased their fees to try and claw back some money from customers during the recession, and says there is no reason for banks to charge anywhere near 5%.

"Banks are charging an extortionate amount in foreign withdrawal fees and by raising their prices, they’re just increasing their own profits," he says.

First Direct, Lloyds, Santander and now Nationwide have all put their rates up in the past five years.

Bizarrely, withdrawing money abroad on certain credit cards is now cheaper than doing so on a debit card. Both the Halifax Clarity and Santander Zero credit cards offer no fees for cash withdrawals, foreign exchange or balance transfer fees.

However, the Halifax card will charge interest at a rate of 12.9% APR, which works out around £1 a month for every £100 withdrawn.

The Santander card charges 27.9% interest on cash withdrawals. So the full balance should be paid off as quickly as possible to prevent the interest stacking up.

Another option and one that is becoming more popular is to use a pre-paid card.

Caxton FX is one such FSA-regulated provider and you can use its cards almost anywhere in the world where the MasterCard logo is displayed for free ATM withdrawals. The cards can be topped up online, by text message, or in person.

Hickman says although Caxton takes a slice of money when they exchange money, this is still substantially lower than the uncompetitive exchange rates that the banks use.

FairFX is another good choice and they will even add £5 on for every £500 you add to the card.

Both of these cards must be applied for online, so if you don’t have internet access the Travelex Cash Passport is a useful option as you can buy one at a Travelex outlet, however, there is a 2% charge when you top up.