Money Mensch: Play your credit cards right on holiday
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Spending overseas on some cards can be very expensive. Yet pick the right card and you can smash down the charges.
To get the best deal, you have to prepare in advance. Right now, in fact.
It’s all about stealth charges
The cheapest way of spending abroad is using the right card. Most charges levied when you use a card overseas are hidden. You do not know about them, and they are not broken out in your statement. The biggest ruse is foreign exchange “loading”.
Most cards have a “load” of around 3 per cent, meaning if you buy £100 worth of euros at current rates, you will be charged £103 for them. So, while your bank gets the best exchange rate, it then adds this load on, making yours nowhere near as competitive.
Cheapest way to spend abroad
After years of building a cheap holiday brand, Nationwide has started to load for the first time. From May 6, if you spend outside of Europe on a Nationwide credit card, it now adds 0.84 per cent. Admittedly, that is still small, but it is a move in the wrong direction. Plus, it is increasing again to 1 per cent in July. The current winner is the Post Office credit card, which is load-free everywhere. Though it does charge 2.5 per cent for cash withdrawals, which is standard (most load, then add withdrawal fees), so you are far better off spending on the card than withdrawing cash and spending that.
Abbey Zero is launching on Monday. It is the same but charges no cash withdrawal fee and will be the new winner. However, it is worth noting that for European spending, the Saga card does just pip the Post Office, though you need be over 50 to get one. And even better than both of those is the Nationwide debit card, which, of course, is only available if you have a Nationwide bank account. It is “load-free” in Europe, with no cash withdrawal charges. Now just to make it clear, these cards give you a better rate than bureaux de change but that does not mean they are good in the UK. That is the reason I have a special travel wallet waiting until I hop overseas. In it, I keep a specialist credit card for use abroad, my free European Health Insurance Card and any dollars or euros left over from previous trips.
Holiday cards from hell
The worst cards out there are debit, not credit cards. If you have a Halifax, RBS, Lloyds, Abbey or NatWest debit card, watch out: when you are overseas, not only will you be charged a cash withdrawal fee; on top, you will also pay a penalty every time you spend. This fixed fee can be up to £1.50 a time.
So buy something costing £5 worth of dollars, and they will first load 3 per cent on top, and then add up to £1.50 on top of that. In means that your £5 purchase costs around £6.65. If this is the only card you carry, then it is easier and usually cheaper to get foreign currency out before you go. For full card by card info and how to find the cheapest, use the free tool at www.moneysavingexpert.com/spendabroad
Can’t get a new credit card?
If you have an imperfect credit history, or are about to get a mortgage and do not want to add any searches to your credit file, one alternative to specialist credit cards is to use one of the growing range if prepay cards.
With these, you preload them with cash, then spend on them abroad just like any other plastic. My top pick is the FairFX prepay card. While it charges a £1.50 ATM fee, there are no charges for spending, no foreign loading, and it can be topped up for free by debit card or bank transfer. It is also possible to get it via the comparison website moneysupermarket, where the £10 application fee is waived.
The only reason it does not beat a credit card is that the underlying exchange rate tends to be slightly worse. Not far behind is Travelex’s cash passport, and unlike FairFX, which can only be ordered online, you can get this from any Travelex branch — including airports — so it can be a last-minute solution.
Cheapest foreign currency
Do not get your cash out at the airport. By ordering currency online before you go and picking it up from the airport, you will usually get a much better rate. I have a full comparison tool which finds the best rate for every country in seconds available at www.moneysavingexpert.com/travelmoney.
Of course, the one question that crops up time and again is, if you are going away this summer, should you get the cash now or then?
I am afraid I simply do not know the answer: that is currency speculation. Relative currency rates move just like stocks and shares prices do, going up and down. Just because the pound is weak now, it does not mean it won’t get weaker — or stronger.
The only way to know is with a crystal ball. If your bet is the pound will get worse, then buy now, but remember it’s a gamble just as much as a trip to the bookies.
That is why my focus is always on accepting that rates move and ensuring that when you go you get the very best rates you can at that time.