How to avoid a payment fees sting while on holiday
Updated:
The summer holidays are fast approaching and millions of Britons will be jetting off into the sun.
But many will unwittingly lose hundreds of pounds to overseas charges by making costly payment mistakes even if they think they are prepared.
Some providers and retailers can add up to £5 extra per transaction abroad. British travellers lost around £2.5million in foreign exchange fees last year in this way, research shows.
Whether you opt to use your debit card for holidays this summer or want to take out cash, we reveal what you need to know to not get stung on fees when making payments abroad this summer
More banks now offer fee-free spending abroad as a perk.
Standard debit and credit cards often levy 'non-sterling transaction fees' on transactions in foreign currencies, normally in the region of 2.5 per cent to 3 per cent of the purchase amount.
Britons jetting off on holiday need to be aware of payment mistakes which could cost them dear
First Direct, Monzo, Starling, Chase and even high street giants Lloyds and Nationwide count themselves among the banks which allow customers to spend abroad as they would at home with their debit cards
But even customers using a fee-free debit card could find they pay less by using a specialist travel debit card like Currensea, Wise or Revolut.
These cards remove bank fees and can be more than 0.5 per cent cheaper than fee-free cards and over 3 per cent cheaper than high street banks' debit cards.
Jamie Melzack, 47 from North London used a Currensea travel debit card to pay for hotels, shopping and food and drink while on trips in America, Abu Dhabi and Spain.
He found he saved £400 by using a Currensea travel debit card rather than his NatWest high street debit card.
He said: 'I could see my total savings in the app and saw I saved £400 on trips using the Currensea card instead of my bank card.'
Typical fee-free accounts, for example from Monzo, Starling, and Chase, rely on fixed card scheme rates that are set once a day.
However, the real FX market changes throughout that day. The card scheme rates therefore need to be set with substantial margin to protect against adverse market movement - meaning consumers may not always get the best rate.
Prepaid travel cards are chip and pin cards, much like a debit card, you load up with foreign currency before you go on holiday, thereby locking in a set exchange rate.
They are offered by firms including the Post Office, Sainsbury's, Travelex and Mastercard.
They have their benefits, allowing you to budget on holiday more effectively, as well as locking in one foreign exchange rate when you load the card, instead of a different rate every time you spend.
But here's the snag, if you don't spend all the money on the card you will be faced with costly fees to withdraw the remaining cash.
And many will simply forget about the leftover funds on their card after they return home.
For this reason, the average traveller using a prepaid card returns from trips with £89 left while close to half of those with school-age kids return with more than £100, with the average at £109 left on prepaid cards.
Never pay in pounds sterling if the option is offered when overseas. Whether paying the bill at a restaurant or buying something in the shops, you should always pay in the local currency.
Andrew Hagger, of personal finance website MoneyComms, explains: 'If you pay in GBP this allows the overseas retailer or ATM to use an inferior local exchange rate which can prove way more expensive than the normal Visa or MasterCard exchange rates – this is known as Dynamic Currency Conversion.'
If your provider does charge fees when using your card abroad, making multiple, smaller purchases or withdrawals over the trip can really add up.
Therefore you might be better off withdrawing a larger amount of money once at the start of the trip, and setting a daily budget.
More than half of travellers say they don't know how much they're charged when withdrawing cash abroad, with some providers adding up to £5 per transaction.
If you withdraw the cash in one go, you won't be hit with as many fees if your card provider does charge fees.
The airport has some of the most expensive rates for exchanging money
Exchanging money at the airport is one of the most expensive ways to get foreign currency.
Probably the biggest mistakes you can make when buying foreign currency is to do so at the airport bureau de change, where currency rates are normally extremely poor.
Yet 27 per cent of travellers still exchange the bulk of their cash at the airport despite getting the worst rates and facing high fees.
Andrew Hagger says: 'Never buy or sell your currency at the airport. You'll lose around an extra £10 for every £100 you spend – just don't do it unless it's an absolute emergency.'
Laith Khalaf, of AJ Bell says: 'Effectively buying money at the airport is a hefty tax on your holiday for not planning ahead.
'The same principle applies to getting travel money from the post office, which is another popular choice.
'Individual post offices will usually have their own currency rates but if you order online beforehand, you'll almost certainly get a better deal.'
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