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Cheapest credit and debit cards to use abroad

The cheapest cards to use abroad
With the summer holidays approaching and millions of people looking set to travel abroad, consumers are being urged to avoid unnecessary credit and debit card charges when using their plastic overseas – a sum estimated at £541 million* a year.

With £344 million* alone spent just on credit cards abroad each year, consumers can easily reduce this staggering sum by searching for the best deals available and tailoring card usage for different occasions.

Stuart Glendinning, director of credit cards at Tiscali's partner credit card comparision service moneysupermarket.com, said: “It is worth investing the time and effort before your trip to find a deal that best minimises costs and offers security if your card is lost or stolen. It is important to remember that your day to day credit card may not offer the lowest fees when used abroad.”

However, many consumers find using their debit card an attractive alternative for spending abroad as they may be less likely to incur interest. Most banks however, do levy a conversion (loading) charge, typically 2.75% of spending, and consumers should be mindful of other cash withdrawal and purchase fees levied when they use their debit card

Glendinning said: “Spending on debit cards is a popular and convenient choice for many Brits abroad. Yet, many banks can sting you with hidden charges if you aren’t careful. Lloyds TSB, for example, will start charging their current account customers £1 every time they make a purchase abroad from 20 May 2005. This is a surprising development given that they already charge a 2.75% conversion charge on all foreign currency transactions. It also looks harsh when a number of providers do not even apply the foreign currency conversion charge.”

For example, if on a two week holiday abroad, a consumer spent a total of £1,500 with a Lloyds TSB debit card withdrawing cash on two occasions (two £500 withdrawals) and paying for goods worth £500 with their debit card, they would pay £41.25 on conversion (loading) fees, £9.00 on cash withdrawals and £1 on top for each purchase after 20 May - a significant additional cost to the holiday.

Top pitfalls of using your card abroad

1. Foreign currency conversion charge - Most providers levy a fee, sometimes referred to as a handling fee, (typically 2.75%) on all purchases and cash withdrawn overseas. Nationwide and Lombard are the only two card providers not to levy a fee for both EU and worldwide usage.

2. ATM withdrawal fee - The vast majority of credit card providers add an additional charge of up to £2 or 2% (whichever is greater) if a consumer uses their card to withdraw cash from a foreign ATM.

3. Interest rate for cash withdrawals – Often these incur a much higher rate of interest than normal transactions. For example, the Halifax One card typically charges a standard rate of 12.9% APR. This increases to 22.9% for cash withdrawals.

4. No "interest free" period on cash withdrawal - In addition to a higher interest rate, note also that interest is charged immediately when a cash withdrawal is made. Any interest-free period that can apply to purchases, typically over 50 days, made on the card does not apply to cash withdrawals.

5. Dynamic Currency Conversion - This is a 'hidden' cost that holidaymakers are unlikely to be aware of. Irrespective of which card you use to pay for goods overseas, some retailers will levy a 'dynamic currency conversion' - i.e. they will convert the price of the goods from their domestic currency, such as euros, into British pounds at their own conversion rate. This is not always evident when you sign your bill. One to watch out for.

6. Paying off your holiday debt – the true ‘hidden cost’ of using your card abroad will be felt by those individuals that normally clear their debt during the interest free period but can’t clear the whole balance when they return from holiday and because finances are more stretched than usual. It is not widely understood by consumers that failure to clear the balance in full results in all future purchases having no interest free period and thus interest is charged immediately any transaction takes place.

Top perks for credit card usage overseas

1. Convenience - Using plastic is understandably a very convenient and easy way for many people to spend money when abroad. It means that there is no hassle with money exchange facilities and little cash to be carried on your person.

2. Security - With many credit cards offering free purchase protection, this is a perk to be remembered whilst using your card abroad. All of the top five credit cards for use abroad offer this benefit, but criteria varies between each provider. Most cover against loss, theft and accidental damage for purchases, but there are limits and excesses apply.

3. Spending at 0% interest - Some credit cards that offer low, or no charges for usage overseas, also offer a 0% APR introductory offer for purchases, including Nationwide and Lombard Direct. This means that borrowers who do not pay off their bill in full each month have the ability to get it paid off for up to six months interest-free.

4. Lost & stolen cards - If a credit or debit card is lost or stolen while on holiday, on many occasions the card can be cancelled and the card provider can send an emergency replacement card, such as Lombard Direct and Saga, ensuring that your holiday is not ruined or disrupted.

5. Round the world access - Credit cards are accepted all over the world, from the coldest parts of Poland, to the darkest depths of Peru. Consumers have the comfort of not worrying and almost all parts of the globe will accept your trusted plastic friend. It's just up to you to take the right one.

Finding the best deal

So having looked at all the possible ways we can be charged which banks, building societies and credit card companies offer the best deals when spending abroad with credit or debit cards.

It is important to remember that your day to day credit card may not offer the lowest fees when used abroad, so investing the time and effort before your trip to find a deal that best minimises costs is a valuable task.Consumers looking to make a gain from their holiday spending should consider a card with no loading fees and/or low ATM charges, such as Nationwide and Lombard Direct.

In addition, if you pay off your bill in full each month, then it may be wise to consider the Nationwide Cash Reward card to pay for your holiday and all holiday spending, as it offers 0.5% cashback for the first 6 months - the equivalent of £25 cashback for a £5,000 spend on a family holiday.

And even when you have done all your research and taken the right card with you Richard Mason, director of credit cards at moneysupermarket.com, said: "Even for the savvy consumers who have wised up to the loading fees and ATM charges, holidaymakers should look out for dynamic currency conversion fees. My advice would be to check any bill before signing - if you find that a retailer overseas has converted it into pound sterling with their own additional conversion fee attached, ask to be billed in the currency of the country, as in most cases this will save you money."

Credit Cards

Comparison table to show top five credit cards for use overseas (in relation to charges):

Provider Typical APR Cash Advance Rate Cash With- drawal Fee
Loading Charge (Europe)
Loading Charge (world- wide) Offer Emergency Card?
Nationwide BS Classic Visa 14.90% 16.90% 1.50% (min £1.25) 0% 0% No
Lombard Direct MasterCard 15.90% 14.88% 2.00% (min £2) 0% 0% Yes
SAGA Visa 14.90% 14.90% 1.50% (min £1.50) 0% 1% Yes
Cahoot Visa 12.00% 13.70% 1.5% (min £1.50) 2.25% 2.25% No
Tesco Finest Platinum MasterCard/Visa
15.9%
15.9%
2% (min £2.00)
2.50%
2.50%
Yes

Debit Cards

Table to show charges for debit cards usage overseas from leading UK banks:

Provider Account Conversion Charge (per transaction) Cash Withdrawal Fee (per transaction) Other Fees
Nationwide BS
Current Account
0.00% 0.00% N/A
The Woolwich Current Account
2.00%

2.00% (£2.00 min, no max)
N/A
Halifax Bank Current Account 2.75%
£1.50
N/A
Abbey Abbey Account 2.75% 1.50% (min £1.50) for any machine other than Abbey or LINK
£1 + 1.50% for withdrawals via Cirrus cash machines
N/A
NatWest Bank Current Plus 2.65% 2.25% (no min, max. £4.00) £0.75 flat fee for all Maestro transactions
Lloyds TSB Bank Classic Account 2.75% 1.50% (min £2.00, max £4.50 from 20th May 2005) £1.00 per debit card purchase from 20th May 2005
Barclays Bank Bank Account 2.75% 1.50% (min. £1.50, max £4.50) N/A
HSBC Bank
Bank Account
2.75% 1.50% (min. £1.50) for withdrawals via Cirrus cash machines N/A

 

* According to the Association of Payment Clearing Services (APACS) over £12 billion was spent on credit and charge cards abroad in 2004. With the typical charge of 2.75% applied to this figure, total charges for consumers using their cards abroad in 2004 was £344 million. Debit card expenditure also accounted for over £7billion. With the typical charge of 2.75% conversion charge included with credit card charges abroad, this equals to over £541 million in wasted charges.


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