Banks raked in almost £60 million in June by charging customers for using their credit and debit cards while abroad.
The summer months are big earners for banks, as millions of Brits head off in search of lasting sunshine (last spotted in the UK around 2006). Research from Travelex shows holiday makers using their cards in the shops incurred transaction fees totalling £43.6 million, while those who withdrew local currency at ATMs wasted a further £14.4 million.
For the bank, that works out to total profits of £58 million – enough to send 20,000 families of four on a week-long holiday to the Med.
The reason why using your card while abroad is so expensive is that the vast majority of banks charge a hefty 2.75% fee whenever you make a purchase in a foreign currency.
Bank cards are pricey
“Even in tough economic times, consumers are not being smart with their money when travelling abroad,” says personal finance author Martin Bamford.
“For each of these transactions consumers are risking uncompetitive and fluctuating exchange rates and overseas charges.
“Whilst many would see using credit and debit cards as a way to spread finances and have easy access to money, the charges they incur will actually cost them more money in the long run.”
Avoid the foreign fee
Thankfully there are ways to avoid those hefty foreign transaction fees. The first is to switch your current account to Nationwide, as it is the only provider which doesn’t penalise you for accessing your money abroad (if you’re planning on spending on your credit card, then you can add the Post Office and Abbey Zero cards to the list).
Of course, switching bank accounts just to avoid a fee may seem like a lot of hassle for some people. You could of course exchange all your currency before you leave, but carrying around a lot of cash isn’t advisable, says International Currency Exchange marketing head Andrew Hamilton.
“Buying currency does mean you will be carrying around cash and we believe it’s important for travellers also to think about their safety when going abroad.”
Go for prepaid
An attractive alternative is the pre-paid travel card, which works just like your bank card except that you can load it up with foreign currency, allowing you to avoid the 2.75% foreign transaction fee altogether.
Using a prepaid card is also more secure, as it means you don’t have to risk your main credit or debit card abroad.
According to the Association of Payment Clearing Services, there was a 25% rise in the fraudulent use of UK credit and debit cards last year mainly due to stolen and counterfeit cards used abroad, with card fraud overseas having risen by 77% last year.
Every silver lining has a cloud
There are two downsides to prepaid travel cards, however. The first is that the majority only allow you to load £, € or $, so if you’re going anywhere outside Europe or the US you’ll still be hit with the foreign fee.
The second is the fact that, because providers don’t make any money off their customers through interest, prepaid cards tend to charge higher fees than normal bank cards.
Considering you’ll only be using the card occasionally throughout the year, it’s essential you choose a prepaid travel card that charges no set up or monthly fees, as you’ll end up spending more on maintaining the account than you would save by avoiding the foreign transaction fee.
My recommendation would be the Post Office Money card.
