We Brits will spend about £18 billion this year on visits to European countries in the eurozone. Of that, over £1 billion will be creamed off by banks overcharging us for our euros. But there’s an easy way to save 5-10% on your foreign spending.
When we travel abroad, we pay more than we need to because we use UK credit or debit cards to pay for purchases in shops or to withdraw cash from ATMs. In both cases we pay extra for the currency transaction.
Let’s start with debit cards, where banks charge 1.5% (A&L, HSBC, Lloyds), 2% (Barclays) or 2.25% (Natwest) for cash withdrawals. But did you know most of the banks also apply that charge on every single debit card transaction?
Only Nationwide doesn’t do this - so last year Moneyfacts worked out that buying ten £25 items on a debit card would cost £189 with Barclays as compared with £169 with Nationwide.
More fees added
On top of that, banks use exchange rates on these transactions which are well below the best commercial rates, so the overall levy on a cash withdrawal is more like 5-6%.
Credit cards have no per-item charges, but the vast majority of cards apply a 2.25% (sometimes more) charge on every foreign currency transaction. With debit cards, there’s often an upper limit to the currency charge (£5 with Natwest, £4.50 with Barclays), but with credit cards there’s no upper limit. So every foreign purchase with a normal credit card costs you at least 2.25% extra.
So how do you avoid this giant bank rip-off? Take cash abroad? You have to be joking. The High Street banks’ exchange rates for euros are about €1.24 per £1 today (£100 buys you €124) as compared with the real exchange rate of €1.30 (£100 buys you €130). Change sterling at foreign banks? Even worse, because many of them will not only give you a poor exchange rate but add a flat fee of €5.
Three escape routes
There are three escape routes from the foreign exchange rip-off: Nationwide, the Post Office and the new FairFX card.
Nationwide levies no forex charge on its debit or credit card. And its debit card has no per-transaction fee. So its bank account is the best for travellers. I use its Gold credit card on my travels for all non-cash spending.
The Post Office credit card also levies no forex fee, so it is fine for non-cash spending abroad, where it will probably save you on average 5% on your spending as compared with withdrawing cash on a normal debit card.
FairFX is a leap forward in technology. It is a prepaid Mastercard which you can load up with either US dollars or Euros. The whole thing is managed online: registration, loading and balance checking. You pay a one-off £9.95 for the card but it costs nothing to load it.
Then you can use it in shops, restaurants etc just like a credit card - it uses chip-and-pin - but without incurring those currency charges. And if you lose it you can login and cancel the card to save any balance.
With FairFX you will still pay a cash withdrawal charge of €1.50 or $2 at ATMs. But using its card for foreign cash will still be cheaper than using your normal bank account debit card or buying foreign currency on the high street.
The savings add up
The key difference with the FairFX card is that it always uses the keenest forex rates, which are typically 3% above the best rates used by the banks and 6-7% above the worst. Add that advantage to the saving of the per-item debit card charges and you can easily save 10% on a set of foreign purchases.
Add up your average foreign spending over a year or two and you will realise that a 5-10% saving is very worthwhile.
Use the FairFx currency card, the Nationwide debit or credit card or the Post Office Platinum credit card for overseas transactions and over a year or two you really will save yourself a packet..
