Save money abroad – don’t pay with your debit card: If you’re jetting off, here’s how to avoid being hit by hidden, rip-off charges
- Every card transaction can quickly spoil the memory of a good holiday
- This dent in the pocket will be made bigger by the impact of the weak pound
- One couple from Cardiff found they were caught by the hidden card charges trap
Holidaymakers are being warned to think twice before flexing their everyday plastic when spending abroad. With every transaction in a shop, hotel or bar, a combination of poor exchange rates and hidden card charges can quickly spoil the memory of a good holiday.
This dent in the pockets of holidaymakers will be made bigger by the impact of the weak pound.
Sterling is worth 12 to 14 per cent less than it was on the day of the Brexit vote, when compared with currencies such as the US dollar and euro. Thanks to the Brexit effect, travellers now get $91 and €94 less for every £500 they change, compared with this day 13 months ago.
Hidden charges: Holidaymakers are being warned to think twice before flexing their everyday plastic when spending abroad
Joanna and Mark Aitchison, from Cardiff, knew they were getting less spending money for their sterling when holidaying on the Balearic island of Majorca in May. As a result, Joanna worked hard at finding a low-cost flight and a half- board hotel deal to offset the reduction in their spending power.
But when the couple returned home from their week-long trip they realised they had been caught by the hidden card charges trap.
Dozens of unexpected small charges added to transactions made on Joanna’s debit card – for drinks, lunches and gifts from local shops – pushed up the cost of what was meant to be a bargain holiday.
Joanna, 43, who runs a directory business with Mark, says: ‘I use my debit card all the time at home so I did not think anything of doing the same abroad.’
The couple put a €1,000 deposit for a hire car on the card and paid for their hotel stay once they arrived, unknowingly racking up fees for both transactions.
Joanna adds: ‘We already knew the exchange rate made our holiday spending quite expensive. But then to discover I had been charged for each purchase on my debit card felt a little sneaky. We had a budget for the holiday and because of this we went over it.’
With every transaction in a shop, hotel or bar, a combination of poor exchange rates and hidden card charges can quickly spoil the memory of a good holiday. This dent in the pockets of holidaymakers will be made bigger by the impact of the weak pound
Research shows that the Aitchisons are not alone in making bad holiday spending decisions.
Around 7 per cent of all money spent on holiday will be withdrawn from a cash machine while around 16 per cent of holiday spending is done on debit cards. Currency card provider FairFx estimates that in total bad holiday spending decisions cost Britons £5 billion every year.
Matt Hall, head of savings at bank Santander, says: ‘Holidaymakers’ pockets are already stretched but, by using a cost-effective payment method, they can at least make sure they do not inadvertently throw more money away. We would advise everyone to spend a bit of time checking out any fees or charges before making a decision about how to pay for their holiday spending.’
Rachel Springall, financial expert at money data scrutineer Moneyfacts, says: ‘While consumers get protection from theft when using their plastic abroad, some debit and credit cards will charge eye-watering fees each time cash is withdrawn or a purchase made.
‘A typical debit card charges £9.50 when consumers withdraw £200 of cash abroad while some credit cards can charge nearly £12 before interest is applied.’
Last week, the Treasury announced a ban on the charges that many online retailers – and some shops – apply when processing purchases made via a debit or credit card. This will apply from the start of next year and be Europe-wide. But it will not stop banks applying foreign usage fees or overseas cash machine providers charging a fee for withdrawing cash.
Here is how to avoid falling into the tourist spending trap.
Cash is king
If you do prefer to pay in cash when abroad, then be sure to get your currency ahead of travelling.
Comparison websites such as Travel Money Max can flag up the best rates and the nearest branches where currency can be bought. Many foreign exchange companies will deliver your spending money for a small fee or let you collect in person for free.
Feeling burned: Mark and Joanna Aitchison were hit by card fees after visiting Majorca
Websites such as WeSwap now let you buy currency from people who have come back from holiday with spare dollars or euros.
The idea is that both buyer and seller get a better exchange rate than on the high street. But the downside is you have to wait seven days to get it unless you want to pay a fee, so it is not for those heading off on a last-minute getaway.
Money you buy is loaded on to a card, like a currency card (see below), and you can then withdraw cash from an ATM. But there are charges if you only withdraw small amounts.
Currency traps to avoid
If you pay for anything on plastic while abroad remember to always use the local currency. It means you will not fall prey to so-called dynamic currency conversion where the local bank sets the exchange rate in its favour, not yours.
Do not exchange your money at the airport. A bureau de change in a departure lounge knows you are a captive customer so will invariably offer you a dismal exchange rate.
If you have left it to the last minute it can often be better to wait until you get to your destination before buying your dollars or euros.
Stick to your holiday budget. It is easy to overspend when you are converting foreign currency into pounds in your head.
Downloading a budgeting app where you can log each purchase can help you keep track of your holiday spending.
PRE-LOAD YOUR PLASTIC AND LOCK IN A DECENT RATE
One option: The Halifax Clarity card
Currency cards let you pre-load currency, which means you lock in the rate you pay. Your money is also protected if the provider goes bust.
But it is important to check the small print as some card issuers will charge you to load money, while others will apply an ‘inactivity charge’ in months you do not use the card. The exchange rates on offer are also not always competitive.
If you are happy to manage the money on your currency card through an app on your mobile phone then the Monzo card is a sound choice with no charge applied to spending.
Locking in a rate now is great if the pound falls further, but the risk is that the exchange rate improves and you miss out. Websites such as FairFx can let you set up an alert to inform you if the exchange rate reaches a predetermined level.
While it is free to use your debit card at home, most banks will charge you for flashing the plastic while abroad.
Some banks charge a flat fee for each purchase, often as high as £2.50 a time, while others will charge a percentage of the value of the transaction, as much as 3 per cent. For withdrawing cash, banks will typically charge a percentage of the amount you withdraw, with a minimum fee of £3 for each visit to a foreign cash machine. If you do want to pay with plastic then using a credit card can get you a better deal.
For example, the Halifax Clarity card does not impose overseas transaction fees. But it applies interest of 18.9 per cent to any card balances not cleared promptly. Post Office Platinum, Royal Bank of Scotland (Reward Black) and Santander (All in One) also do not apply foreign usage fees.
On – 22 Jul, 2017 By Holly Black