Money news, advice and predictions for savers and spenders. This week: bad news for holidaymakers heading abroad.
By Jeremy Gates
The weakness of sterling against other currencies especially the Euro and dollar - means millions of British travellers face a double whammy on foreign spending this year.
The poor conversion rate is an obvious trap, but most people find this out if they change cash before they go. It's a painful lesson if you have to settle for the conversion rate at UK airports.
To add insult to injury, however, the banks have sharply increased fees and charges for using credit and debit cards abroad - and many travellers will realise their pockets have been picked for a second time only when card statements arrive after the holiday.
New research from uSwitch, the independent price com-arison and switching service, predicts British holidaymakers will pay a whopping £754m in card charges on overseas purchases - £401m on debit cards, and £352m on credit cards - on 'plastic' spending topping £22bn in 2009.
Andrew Hagger at Moneynet.co.uk says the obvious trap is debit cards, which are free to use in the UK.
"Abroad, however, purchases are subject to a conversion fee (2.75% to 2.99%) plus a charge of up to £1.50 per transaction, so there is a strong argument for not using debit cards on many small transactions.
"Plan your spending. If you are in a villa, don't go to the supermarket each day for beers, when you could buy a week's supply in one transaction. That keeps charges down.
"Similarly, the case for fixing car hire before you leave the UK is probably stronger in 2009. You know exactly what you will pay, and can't be caught by dips in the exchange rate. And you won't sign a form in an airport queue which might incur extra charges."
Hagger says some families could get clobbered by charges of £100-plus on their use of cards for purchases and cash withdrawals. On some transactions, total charges approach 6%.
uSwitch says 17 banks now impose transaction fees on debit card purchases abroad - against nine in 2008. Tour operator Thomas Cook, which launched its credit card with a flourish last summer, imposes a foreign exchange fee of 2.75% from April 18.
On most cash withdrawals by cards, there's a conversion fee (2.75% to 2.99%) plus a withdrawal charge of £1.50 to £5.
Michelle Slade at Moneyfacts.co.uk say most credit cards charge a foreign usage charge, some as much as 2.99%, for both purchases and cash transactions, each time a card is used.
"Taking cash out on a credit card is never advisable, even in the UK. The interest rate is much higher, and you are charged interest from day one.
"Abroad, you will be charged a cash handling fee-plus a foreign usage charge. Take out £100 on an MBNA Europe Bank credit card, for example, and the charges are £5.99.
"With Nationwide BS and Thomas Cook Financial Services adding foreign usage charges soon, only the Post Office will make no additional charges for using a card abroad."
Peter Harrison, Moneysupermarket.com travel money expert, also likes the Post Office Platinum credit card.
"Unlike bigger name rivals, it offers free purchase protection, zero per cent on purchases for three months and no overseas charges," he says.
"It's a better bet than other cards charging 2.73%-3% for purchases abroad.
"Nationwide's FlexAccount has the cheapest debit card for overseas cash withdrawals - levying a fee of 1% or less. In contrast, a €100 withdrawal on other debit cards can incur a £2 transaction charge and 3% foreign exchange fee.
"If you are stuck with uncompetitive debit or credit cards and haven't time to get a new one, FairFX and Caxton FX prepaid foreign currency cards are a good alternative.
"Because they are prepaid, they offer no credit facility, are approved instantly and - to avoid overspending - only let you spend what is on the card."
Moneysupermarket.com's table of the top six cards, providing the cheapest way of spending either €500 or 500 dollars, is headed by the Post Office Credit Card, followed by Nationwide BS FlexAccount Debit Card; Thomas Cook Credit Card, Nationwide Gold Credit Card, Caxton FX and Fair FX, (both prepaid cards).
Harrison says finding the right payment vehicles for a foreign holiday is more important as sterling weakens.
He goes abroad with both Nationwide BS debit and credit cards - the latter for consumer protection, although others see it as a way of spending money they haven't yet earned - which are available to Nationwide account holders.
Harrison also fears travellers are seriously confused by all currency suppliers boasting a 0% commission rate.
"The vital thing is to look closely at the exchange rate actually offered," he says.
"Foreign cash at the best rate usually goes to those who book it in advance, while some prepaid cards, notably Fair FX and Caxton FX, offer highly competitive rates," he says.
Slade, at Moneyfacts, says Nationwide BS remains "the cheapest option by far" on debit cards, even with cash conversion and retail conversion charges imposed on purchases outside Europe of 0.84% from May 6, rising to 1% on July 9.
The acute weakness of sterling abroad is having an impact on where we go, as well as how we spend.
The latest City Costs Barometer from Port Office Travel Services says non-euro destinations - notably Budapest, closely followed by Warsaw and Prague - are luring thrifty tourists away from the eurozone.
James Yerkess, M&S Money travel money product manager supervising 116 foreign currency bureaux from Aberdeen to Truro says people are choosing destinations partly because of currency considerations.
"Demand for currency in Egypt and Turkey shows significant growth while our biggest increase, year on year, is for Kenyan shillings. South Africa is attractive to UK visitors with the rand more stable against sterling than the euro or dollar."
"It is also clear to us that people recognise the weakness of sterling, and are taking more cash upfront. Our policy is to keep it simple with a highly competitive conversion rate."
To defend its market share against FairFX and Caxton FX, M&SMoney may have little option.
Stephen Heath at FairFX says pre-paid cards are like cash, but more secure.
"They're a more economic way to convert money because they avoid old methods of using staff to secure cash and deliver it.
"Our service, existing entirely online, cuts costs to enable us to offer better rates.
"Our exchange rate is normally within 1% of interbank rates, whereas the margin at airports like Luton, Birmingham or Manchester is as wide as 15%. You can pay £30 to change £200 of spending money."
There's one further point for cost-conscious travellers to remember: always ask for local currency to be used in any transaction, to avoid the additional 4% surcharge legally inflicted by dynamic currency conversion, if retailers convert transactions into sterling.
:: Information: Post Office City Costs Barometer can be viewed online at postoffice.co.uk/citybreaksreport; M&S Money (0800 363 484 and www.marksandspencer.com);
Initial fee of £9.95 charged for a FairFX Euro or Dollar Prepaid Card is waived for applications through uSwitch.com.
Further information on www.moneysupermarket.com; www.moneynet.co.uk and www.moneyfacts.co.uk. See also www.no1currency.com, which has nearly 300 outlets nationwide.
Poundnotes
:: What must pensioners starting retirement this year be thinking as they see MP's claiming barbecues and bath plugs on their expenses? Prudential says that 2.76m women planning to retire this year expect to receive an annual average pension of just £13,671, while 3.95m men about to retire expect an average £20,313.
While 58 is the average age for UK adults retiring in 2009, the Pru says that as many as 61% of people retiring this year doubt their pension and other savings will provide a sufficient income to enable them to enjoy a comfortable life in retirement.
:: Sainsbury's Finance offers a personal loan rate of 7.9% APR (typical) to Sainsbury's shoppers applying online with a Nectar card for £5,000 - £15,000. It claims to be one of only four providers with typical APRs below 8% for loans of this value.
Information: 0800 169 8502 and www.sainsburysbank.co.uk.
:: Almost a third of the adult population does not have sufficient money set aside to cope with an emergency, says the latest Savings Survey from National Savings & Investments (NS&I). Britons believe the average amount needed to bring peace of mind is £5,368.70 - the approximate equivalent of four months of the average take-home income.
"Our survey reveals that almost one-in-10 Britons (9%) think they could only support themselves for one month if an emergency arose," says Dax Harkins, NS&I senior savings strategist.
:: With their money earning virtually nothing in banks and building societies, keen income seekers might be intrigued to hear that investment manager Hargreaves Lansdown is adding the M&G Strategic Corporate Bond Fund to Wealth 150, its list of favourite funds in each sector.
"The Fund is managed by Richard Woolnough, who made the right calls to stay away from banks during their most troubled times," says Hargreaves Lansdown.
"Our analysis shows his credit selection has been exceptional over time."
However Rathbone Income, a high flying fund for several years, has been dumped from the HL list of top performers - despite manager Carl Stick's attempt to pump up performance by trimming his portfolio from over 80 stocks to just 53.
Hargreaves Lansdown enquiries: 0117 900 9000.
:: High Five Savers:
Phone No Rate Account Period Deposit Interest paid
Halifax wwww.halifax.co.uk 4.30% Web Saver Five Years £500 Yly
West Bromwich BS www.westbrom.co.uk 4.15% E Bond 20 31/05/14 £5,000 Yly
ICICI Bank UK www.icicibank.co.uk 4.10% HiSAVE Fixed Rate 24 Month Bond £1,000 OM
Manchester BS 0161 923 8015 3.56% Premier ISA 45 Issue 1 £1,000 Yly
Barclays Bank 0800 494 949 3.55% Golden ISA Instant £1 Mly
:: TOP FIVE BORROWERS:
Phone No Rate Period Max% Adv Fee Incentive
HSBC 0800 494 999 2.49% discounted for two years 60% £249 Yes
First Direct 0845 610 0100 2.89% for term 80% £799 Yes
HSBC 0800 494 999 2.95% for term 60% £799 Yes
Hanley Economic BS 01782 255 000 3.14% for two years 80% £799 Yes
Co-Op Bank 0800 633 5286 3.64% to 31/03/12 75% £995 Yes
Code:
*F - Fixed
*P - Operated by Post
*B - Operated by Post/Telephone
*T - Operated by Telephone
*W - Operated by Internet
*H - Operated by Internet/Telephone
*S - Available only to those aged 50 or over
*R - Available to those aged 60 and over.
:: Source: Money£acts - Tel: 01603 476 476 (All rates subject to change without notice)
