Millions lost exchanging money at airports
Holidaymakers are wasting almost £22 million a year buying currency at the last minute at airports, a study shows.
Research by the Post Office revealed that around 1.5 million people are hit with bad exchange rates and high commission fees as they buy their holiday money at airports and train stations.
Birmingham airport offers the worst exchange rates, according to the Post Office, while Manchester, Newcastle and Liverpool airports' bureaux de change also offer lower than average airport rates.
Many holidaymakers also face massive bills from their bank or building society due to the fees on withdrawing money at ATMs abroad.
Fees and charges
Debit cards, such as those from Santander, Halifax, Lloyds and NatWest, typically charge two fees: a flat cash withdrawal fee and a currency exchange fee. NatWest charges 2% for the withdrawal and 2.75% for currency conversion. For a fortnight's holiday with the family, these fees can quickly add up.
According to financial research company Defaqto, the average charge for a £100 cash withdrawal with a debit card from an overseas ATM is £3.96.
However, there are several ways around these fees. Despite Nationwide cutting its offer of free overseas transactions last year, there are still a few debit cards around that don't charge fees.
Metro Bank's personal current account and Norwich and Peterborough's gold current account both have debit cards that don't charge fees for purchases or ATM cash withdrawals overseas.
Use the right debit card
Ewan Edwards, head of current accounts at Norwich and Peterborough, comments: "People need to make the most of their hard-earned cash, and not using the right debit card could make a huge dent in your finances."
Cumberland Building Society's current account offers the same deal, but the account is only available to people living in Cumbria, north Lancashire, south west Scotland or west Northumberland.
Santander's Zero current account also boasts a fee-free debit card for overseas spending, but the account is only available to qualifying Santander mortgage, savings or investment customers.
Meanwhile there are several credit cards that do not levy a foreign exchange fee on overseas purchases, such as the Halifax Clarity credit card, the Metro Bank credit card, the Post Office credit card and the Santander Zero credit card.
Another option is to use a prepaid card, such as those from FairFX and CaxtonFX. These are topped up, either online or by text message, from a linked bank account. The card-holder can then only spend up to the amount they have put on the card.
Caxton offers three cards – US dollar, euro and global traveller – and does not levy any fees on applying for the card, withdrawing money, on purchases or topping up the card.
The Post Office recently launched a prepaid currency card. Sarah Munro, Post Office head of travel money, comments: "A prepaid currency card is a great idea for holidaymakers who are trying to budget carefully or for those people who have holiday homes abroad who travel regularly and sometimes at short notice.
"It allows you to load money in slices when rates are favourable and the value is then locked onto the card until spent abroad. You can even top up when you are abroad, which makes it a valuable fallback for people who under-estimate their expenditure."
This article was written for Money Observer
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.
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.
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.