Banks slammed for extortionate foreign transaction fees
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However, the Halifax card will charge interest at a rate of 12.9% APR, which works out around £1 a month for every £100 withdrawn.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.
The Financial Services Authority is an independent non-governmental body, given a wide range of rule-making, investigatory and enforcement powers in order to meet its four statutory objectives: market confidence (maintaining confidence in the UK financial system), financial stability, consumer protection and the reduction of financial crime. The FSA receives no government funding and is funded entirely by the firms it regulates, but is accountable to the Treasury and, ultimately, parliament.
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.
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.
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%.
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.