Using the right card abroad will save you from paying a loading fee - but did you realise you could still be charged commission? We show you how to avoid being ripped off!
A recent survey by APACS, the UK payments association, has found that the amount of fraud committed overseas on UK credit cards has fallen.
Overseas fraud on UK cards totalled £92.5m in 2004 the lowest figure since 1999 and down from the high of £138.4m in 2001. And this is despite the fact that there has been a whopping 93% increase in the use of UK cards abroad in the same period.
Better fraud detection which can detect unusual spending patterns is believed to be part of the reason, though APACS urges anyone travelling abroad to be vigilant with their cards.
Many more of us are relying on our credit cards whilst on holiday, finding them useful as they help to reduce the amount of cash/travellers cheques we need to carry. Paying for hotels and car hire, in particular, with a credit card is very common.
However, paying for purchases with a credit card whilst abroad is not always the cheapest option. Most card providers will slap a handling or 'loading fee' onto each of your foreign purchases which show up on your statement as a 'Forex' payment. This fee is typically 2.75% - and as it is charged on each and every purchase you make abroad, it can all soon add up.
There are currently only two providers with credit cards on the market which do not charge a loading fee, either in the European Union (EU) or worldwide: Nationwide BS and Lombard Direct. In addition, SAGA, Caravan Club, CSMA (Visa) and Liverpool Victoria do not charge a loading fee in the EU (but charge 1% for worldwide transactions).
However, a new commission has recently come to light, which even Nationwide and Lombard Direct cardholders can fall foul of. And who's charging this fee? It seems that the culprits are some of the shops and retailers we're choosing to buy from whilst abroad.
Commonly, when making a foreign transaction with a credit card, you are presented with a credit card slip to sign which shows the price that you are paying in the local currency, for example, Euros.
You sign the slip and a few days later that transaction appears on your statement. The currency conversion to sterling is usually carried out at a rate close to the inter-bank rate, and so often means you get a pretty good deal.
However, the slip of paper that a number of shops are issuing may now show two costs in Euros and sterling. Looking carefully, you may spot some wording similar to this:
"I accept that I have been offered a choice of currencies for payment. I accept the conversion rate and final amount. I understand that the choice of transaction currency is final".
By signing this slip you can effectively have agreed to pay in sterling. Now this may not seem like a problem, after all, the transaction must get converted eventually, why not now?
Unfortunately, as the currency exchange is likely to be handled by the shop itself it will usually mean that they will apply a pretty poor exchange rate and charge commission. In some cases, this could mean you're charged commission of 3%, which would be quite annoying!
Nationwide BS has clearly found this to be an increasing problem and has issued the following warning on its website:
We don't charge commission on any of your purchases, making the Nationwide credit card your perfect travelling companion. However, some shops may ask you to pay in sterling and may apply currency exchange and commission rates which are unfavourable. Where the currency exchange is managed by the shop we are prevented from handling the money on your behalf, therefore we recommend you always pay in the local currency.
I contacted the credit card team at Nationwide and they gave the following advice to help avoid these charges when using your credit card abroad:
- Always ensure when paying for a foreign purchase that you state that you wish to pay in the local currency.
- Check the credit card slip carefully. It should state which currency you are being charged in if it is sterling, ensure that you state again that you wish to pay in the local currency
- In the event of any problems, you can avoid the fees by simply paying in cash.
So the moral of the story is: If you don't wish to be charged numerous commission charges on your spending whilst abroad:
- Take out a Nationwide BS, or Lombard Direct credit card
- Always ask to pay in the local currency
- If all else fails, pay in cash.
And for those that prefer not to use a credit card abroad, follow these tips for finding cheaper travel money. Or switch your current account to the Nationwide FlexAccount, and benefit from free cash withdrawals whilst abroad.
Many thanks to Foolish reader Roddy Kennedy for his help with this article!
More: Send Money Abroad Cheaply
