This piece first appeared in Saga Magazine in July 2008
The text here may not be identical to the published text

 

Play your cards right

Holiday cash can be expensive if you don't

Millions of us will go abroad this year. And most of us will end up giving our bank or credit card company a good chunk of our holiday spending money. Every time we use our plastic to pay for a hotel, car hire, train tickets, petrol, meals, the sun cream we didn’t pack in case it was confiscated at the airport, or take out cash the banks usually take a cut – often several cuts – from our money.

But take a step back. Where are you going? The pound is weak at the moment. Holiday cash disappears rapidly in Europe with the euro at barely €1.20 for each pound and the cost of living high in the eurozone. The new eastern European EU members tend to be better value for money. Egypt and Iceland have cheap currencies though the latter is still expensive. The Swedish currency is high and the country expensive.

Travelling west the US dollar has fallen faster than the pound. At around $2 for every £1 and with costs low in the USA holidays there can seem very good value as can countries with currencies linked to the dollar such as Jamaica. South Africa is also cheap. But if you buy things outside the EU remember customs duties and baggage allowances when you return.

With so much of the world now part of the plastic network, it is possible to leave home with no currency at all and then head straight for the cash machine when you arrive at the airport. That can be the cheapest way to get money – cheaper and easier than taking travellers cheques; cheaper and safer than buying large amounts of foreign currency in the UK. In Japan you can use credit cards to pay with but most ATMs don’t give cash on foreign cards. Everywhere you must play your cards right to get the best deal.

Three card trick
When you go abroad you should always take different kinds of plastic. First, if you are in the dollar or euro area, consider a prepaid foreign currency card. They are a fairly new idea and at the moment only available in euro or dollars. But they can be the best value in those currency areas. You buy the card in advance ready loaded with the foreign currency and can reload it by phone, internet or SMS on your mobile. Some prepaid cards make a charge for loading or a monthly fee. Avoid them. You may also pay to convert surplus currency back or cancel the card. You can use a prepaid card whenever you would use a credit or debit card.

Second, take a credit card. Anything you buy abroad on a credit card (but not a debit or prepaid card) is covered by purchase protection as it is in the UK. If something goes wrong with your purchase within 90 days you can claim against the credit card company – which is usually a lot easier than tracking down a foreign retailer. Even if you do not use your credit card it is always useful to have one with you for emergencies. Never use your credit card to take out cash. It will always be very expensive.

Third, if you are travelling outside the euro and dollar area – or you do not want a prepaid currency card – a debit card is usually the cheapest way to get cash out of an ATM. If you use it to buy things remember that you only get purchase protection with a credit card.

Three card charges
When you use plastic abroad you can be charged, charged, and sometimes charged again – and once more for luck.

With most cards used abroad you will pay what is called a foreign loading fee, typically about 2.75% of what you spend. So on £100 it will be £2.75. Sky charges 2.99% and Halifax 2.95%. A few do not make this charge including credit and debit cards from Nationwide, the new Zero credit card from Abbey, credit cards from the Post Office and – used in Europe – Saga. Prepaid cards such as Caxtonfx and FairFX do not make this extra charge in the appropriate currency areas but they do if you use a euro card in a dollar country or vice versa.

Most cards will charge a fee when you use them to get cash from a foreign ATM, typically £2 or more. Some charge a percentage with a minimum. Nationwide does not charge a fee for using its cards to withdraw cash abroad. Nor does the Abbey Zero card – but it does make other credit card cash charges. There is a fee for withdrawing cash with a prepaid currency card. FairFX charges €1.50 or $2, Caxtonfx €2 or $3, Post Office Travel Money charges £2.

If you use your credit card to take out cash you will also be charged interest at a high rate – for example 27.9% with Barclaycard – from the moment the notes are in your hand. So even if you clear your credit card bill in full every month you will still pay interest. And because your bill arrives up to three weeks before it is due to be paid you will find there is interest on your next bill as well. In fact it is difficult to get rid of a small residual interest charge unless you overpay when your card statement arrives.

The other charge you pay is the exchange rate. Visa and Mastercard both buy huge volumes of foreign currency and get good exchange rates. But your card provider may add its own charge by offering you a worse rate than the standard. One prepaid card company, Caxtonfx, gives its exchange rate on its website and guarantees that it is better than any cash rate. It is. But it may not be as good as the rate you get with a debit or credit card.

Other tips
You should not use a prepaid currency card to check in at a hotel or book a hire car. That is because the hotel or car company will ‘ring-fence’ money to pay your estimated bill and that amount will not be available to spend until the bill is paid and the ring-fencing removed. So use a credit card at the start but pay with the prepaid card.

Some card providers will not let you use a card abroad unless you warn them first. Always make sure your bank has your mobile phone number and keep the phone with you when you use your card. Also keep a note of where to phone if your card is lost or stolen.

Look for a prepaid foreign currency card that charges you nothing to load money on and nothing when you spend abroad. All charge to withdraw cash. You will normally pay more for checking your balance or topping up using your mobile phone. Online is usually cheapest.

A new wheeze used in shops, restaurants, and hotels abroad is called Dynamic Currency Conversion. When the card machine is handed to you it will ask if you want to pay in local currency or Sterling. Always say local. The offer is made by the foreign agency which handles your card and the exchange rate will usually be worse than you would get if you let your own bank do the conversion. On top of that there may be a fee for this ‘service’, perhaps 4% or more. So it is always better to refuse this offer.

If you lose a prepaid card the money stored is safe but you will be charged up to £10 for a replacement (£35 with Post Office Travel Money). When your holiday is over you can get any balance transferred back to your bank account but there will be a charge of up to £10. You may also be charged if you forget your PIN or use your mobile to load money or check your balance.

Finally remember your PINs – you will need them in many countries now.

July 2008


All material on these pages is © Paul Lewis 2008