Spending abroad – beware of unexpexted charges

June 11, 2012


Exchange rates display, seen at Suvarnabhumi I...Image via Wikipedia

Every year as summer comes upon us, and cold blooded dinosaurs seek the warmth of sunnier climes, the age old question of what is the best way to pay for things abroad arises.

If you bank in the UK, and shop in the UK, then you don’t expect any additional charges to be added when you go shopping or take money out of most cash machines, however the same cannot be said when you leave the safety of the UK. Even though international banking means getting cash and making card payments around the world is generally relatively easy these day, it can still cost you as your card company, overseas cash machine owner, currency exchange and even individual shops, often want to make some extra money from the tourist abroad.

Probably the most obvious fee that will be charged is that of the currency exchange rate. Before going away it is always a good idea to check with your bank to see what their current rate is. This can give a good comparison figure to help decide how to pay for things abroad, however you also need to check whether there are any possible flat-rate or percentage rate transaction costs for each time you use your credit or debit card for purchases. These additional costs can quickly mount up, especially on small purchases, making it possibly better to simply change a chunk of money to pay for smaller items and take a single transaction charge hit rather than always relying on using your card.

Regularly check and compare exchange rates, and any commission charges. It is can be surprising the difference between rates abroad vs the UK, and as this rate constantly changes, there is unfortunately no hard and fast rule as to when or where it is best to convert your holiday money.

Beware when withdrawing cash out from machines abroad – in addition to the exchange rate, there will also often be an additional charge made by your card company, as well as possibly another fee charged by the owner of the cash machine.

Another possible costly situation you may be confronted with is when spending on plastic you then get offered the option of paying in pounds instead of the local currency. While this means you have a good idea of how much you are spending, is it worth it? As Martin Lewis succinctly answers on the ever helpful MoneySavingsExpert

“No. This is called dynamic currency exchange, and should be avoided. Often the rate you get will be appalling and someone’s making big money out of it. If you’ve got one of the specialist overseas cards you’ll get a much better rate paying in the foreign currency not pounds. And even if you’re using a normal card as you’ve no idea of the relative exchange rates they could be playing you for a fool; so it’s always best to stick with paying in the foreign currency.”

He goes on to say something which many may find a bit of a shock.

“If you’re travelling to Spain, be especially careful. Some Spanish banks, particularly giant Santander, have started to ask UK cardholders if you want to have your money converted into Sterling when withdrawing Euros from ATMs. Always say No; the rate you’ll get is often much worse than the rate you’d be given by your own plastic provider when it converts Euro withdrawals, although the exact rates depend on which plastic you’re holstering.”

Another point to bear in mind is safety. Paying by card may sometimes be more expensive, but can also provide the chance of getting your money back, should things go wrong.

“As a rule of thumb, you are going to be better off using your credit card for purchases – especially those over £100 – and taking cash out of cash machines with your debit card.”
(Source: BBC – Paying with plastic overseas)

It is all a bit of a mine field, so before going away, check with your bank/card company or look at their website to see what their rates are and which fees may apply to your cards. Maybe look into getting a specialist overseas credit card to just be used abroad. And check out some of the helpful online advice and guides available through the banks as well as more independent sources like the BBC and MoneySavingsExpert.

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