Credit card Guides

Credit card charges abroad

Updated Thursday 7 April, 2011

If you are planning a holiday or short-break, it's essential to know what it will cost you to use your credit card abroad.

Most people now take their debit and credit cards on holiday for the convenience and relative security offered. However these cards could end up costing you a fortune in hidden fees and foreign transaction charges.

You might be aware of some of these charges; others might be new to you. But what you do need to know is that there are ways of avoiding them, simply by switching to the right cards.

In this article we explore the different fees and charges applied by credit card providers and show you how to avoid them.

• Loading fees
• Cash withdrawals
• Spending fees
• Should I leave the cards at home?
• Is there anything else I should know?
• Switching cards

Loading fees

Exchange-rate loading fees are added onto the exchange rate by your bank when you make foreign transactions. Your credit card exchange rate is dictated by the Visa/MasterCard wholesale rate so is usually very competitive, however, once your bank adds on the loading fee – typically an extra 2.75% – your exchange rate won’t be so favourable.

This fee won’t show up on your statement either so you won’t even know you’re paying it unless you check your terms and conditions.

The only way to avoid paying the loading fee is to take out a card that doesn't apply it, namely the Post Office credit card (www.postoffice.co.uk).

Santander has also launched the Zero Credit Card which has no foreign exchange fees nor does it hit you with a fee for withdrawing cash while abroad (typically 2.75% of the withdrawal amount).

Compare credit cards from the Post Office>>>

Cash withdrawals

Credit card cash withdrawals make money for banks in a number of ways:

• Typically you’ll be charged around 2% of the withdrawal, or a minimum of £2
• There’s no interest-free period: you’ll start to pay interest as soon as you take the cash out
• You will probably pay a higher rate of interest on it than your typical APR.
• If you check the order of payments in your terms and conditions you’ll probably find that cash transactions are the last thing to be paid off, so you’ll be paying that higher rate on the money you took out, for the life of your balance.

You should be aware that you’ll still have to pay a withdrawal fee on debit cards, but this should still be less than with a credit card.

Spending fees

Spending fees apply to debit cards and are flat-rate charges that banks put on foreign transactions. Over the duration of your holiday, these fees can add up and repeated use of a debit card abroad can make them less economical than credit cards.

For example, on cash withdrawals and purchases abroad on its debit cards, Lloyds TSB charges a 2.99% foreign exchange fee. Cash withdrawals on Lloyds TSB debit cards are also subject to a further 1.5% of the transaction amount with a minimum transaction charge of £2.00 and a maximum charge for each transaction of £4.50.

On top of that, for purchases (not cash withdrawals) abroad, online, or on the phone, in a currency other than sterling, the transaction is also subject to a further £1 per transaction.

Royal Bank of Scotland and Natwest (www.natwest.co.uk) charge £1.25 per transaction with cash withdrawals hit with an additional 2% (minimum £2, maximum £5), and Halifax charges a service fee of £1.50 plus a currency conversion fee of 2.75% of the total amount, for each transaction.

Once upon a time, the straightest player in the game of spending on credit cards while abroad was Nationwide. It even made a TV advert criticising other credit card companies for slapping holidaying Brits with extortionate fees.

But in November 2010, Nationwide quietly dropped its straightforward “no fee” approach for a complicated “Rewards for Abroad” scheme. Basically, as you spend in the UK, Nationwide “rewards” you with a commission-free foreign allowance.

For example if you spend £100 on your shopping in a month (UK, Sterling) you’ll automatically be rewarded with £20 worth of commission-free allowance to use on purchases in a foreign currency. For purchases abroad over and above your allowance, Nationwide charges 2% commission.

Should I leave the cards at home?

No, having your plastic handy on holiday is a good idea. You’ll be able to get money out or pay for things in an emergency and they are a safe way of accessing your funds – you don’t want to walk around with a wad of cash in your pocket.

Plus, if you buy goods worth over £100 with your credit card that turn out to be faulty, ‘Section 75’ rules mean that your provider will be responsible as well as the retailer, who might be difficult to get hold of once you get back to the UK.

You should always make sure you let your bank know you’re going away though as they might stop your card if there is “unusual” spending on it.

Is there anything else I should know?

There are other ways that you could end up paying more than you should:

• Exchange rates – Make the most of favourable exchange rates by ensuring that you pay in the local currency when using your card
• More bank fees – Some foreign banks will charge you for using their cash machines so do check, in case this is avoidable
• Work out the difference – If it’s cheaper to pay the withdrawal fee than the spending fees go for the cheaper option but don’t forget the extra costs of credit card withdrawals.

Switching cards

The best way to save on your holiday spends is to switch to better credit and debit cards – ones that apply less fees and charges on foreign spending. If you use your card a lot while abroad, the difference between using your fee-charging NatWest or Nationwide debit cards compared with a Post Office credit card could be substantial.

Due to ‘Section 75’ protection, if you will be making purchases worth over £100, credit cards are useful spending tool abroad. With this in mind, we recommend the Post Office credit card (www.postoffice.co.uk), as it offers 0% commission on purchases overseas.

Furthermore, Halifax has just launched the Halifax Clarity card, with an APR of 12.9%, which promises no cash withdrawal fees and no fee to use it anywhere worldwide. The Clarity card doesn’t charge you a cash advance fee, but some independent cash machine providers may charge a fee for their service.

So, just as you would shop around for the best exchange rates, it is worth putting the effort in to get the best card, so why not compare credit cards now.