A LITTLE-known holiday mistake could cost you dearly with hidden fees catching travellers out.
Experts warn against using credit cards for ATM withdrawals or buying foreign currency online.
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Using a credit card to withdraw cash comes with high fees – it’s no secret.
However, many travellers don’t realise that buying foreign currency online is treated the same way, with banks applying hefty fees and interest charges.
Laith Khalaf, head of investment analysis at AJ Bell, said: “You need to be careful when ordering travel money online.
“That’s because if you pay by credit card, you’re likely to pay a substantial ‘cash fee’ to your bank.
“It’s extremely cheeky, because your bank isn’t actually converting your money into cash in this instance, the currency exchange provider is.
“However, it’s best to avoid these charges by sticking to using a debit card when ordering holiday cash online.”
For example, if you use Santander’s Everyday Balance Transfer credit card to buy £1,000 of currency online, you’d face a 2.95% non-sterling transaction fee plus a 3% cash fee, adding up to £59.48 in extra costs.
Meanwhile, a Lloyds Bank Everyday Credit Card would charge a 5% cash transaction fee for the same purchase, resulting in £50 in extra costs.
Repeat the move for several summer holidays, and the costs quickly rack up.
However, using a fee-free debit card, like First Direct’s, means you wouldn’t pay any additional fees at all.
Jenny Ross, money editor at Which?, warned travellers to carefully review their card’s terms and conditions, as most cards include these extra charges.
She said: “Over a week away, these fees can seriously dent your holiday budget.
“To avoid them, look for a card without foreign transaction and purchase fees and always pay in the local currency for the best exchange rate.”
What’s the solution?
Use a debit card when ordering currency online to avoid unnecessary fees.
That’s unless you have the Barclaycard Rewards Visa, which is the only credit card that doesn’t charge fees or instant interest for ATM withdrawals abroad.
Before you travel, take time to shop around for the best exchange rates and plan ahead.
Compare travel money companies online, considering both rates and any fees, to secure the best deal.
Use a debit card when ordering currency online to avoid unnecessary fees.
Don’t forget to factor in delivery costs and choose the option that gives you the most spending power on holiday.
If you’re short on time, you can still order online and collect your currency at the airport.
Comparison tools like MoneySavingExpert.com’s TravelMoneyMax can help you quickly compare pick-up and pre-order rates to maximise your savings.
Which credit cards don’t charge for overseas spending?
Barclaycard Rewards Visa
- No fees on overseas spending or ATM withdrawals
- No interest on cash withdrawals if repaid in full
- Representative APR: 28.9%
Halifax Clarity Card
- No fees on overseas spending or ATM withdrawals, but interest will apply from the day you make a cash withdrawal.
MBNA Travel Cashback Credit Card
- No fees or interest on overseas spending for three years (if repaid in full each month), 2.95% fee from year four.
- Overseas ATM withdrawals come with a 5% fee and 12.9% representative APR interest charged daily until repaid
Virgin Money Travel Credit Card
- No fees or interest on overseas spending
- Overseas ATM withdrawals have a 5% fee and 24.9% representative APR interest charged daily until repaid
What are the alternatives?
Deciding whether you really need to order cash in advance is important – especially if you have access to fee-free debit cards or prepaid travel cards.
These cards can save you money and simplify spending, offering flexibility for your holiday budget, particularly in destinations where cards are widely accepted.
Many options, including prepaid debit cards, let you pay abroad without fees or at a fixed exchange rate, making them a smart choice for travellers.
Top debit cards
You should always check the terms and conditions of your debit card to see if, on the off chance, you can use it abroad without any extra fees.
Chase, First Direct and Starling all offer fee-free spending when you use their debit cards abroad.
Those without this capability could choose to link their bank account with Currensea’s Mastercard debit card via open banking.
Then when you spend or withdraw on the Currensea card, it charges your linked current account in pounds (via direct debit), avoiding the non-sterling transaction fees and ATM fees that most banks charge.
Top prepaid cards
A great alternative to carrying cash or your debit card is using a prepaid travel card.
Brands like Revolut, Wise, and EasyFX offer prepaid cards that let you load a set amount of money at a fixed exchange rate.
This means if the rate is favourable now, you can lock it in, and it will remain the same while you’re on holiday.
However, be cautious – these cards can sometimes come with hidden fees and charges.
Always read the fine print to avoid unexpected costs.
Money loaded onto a prepaid card is considered electronic money (e-money) and isn’t protected by the Financial Services Compensation Scheme (FSCS).
FSCS protection ensures your money is safeguarded up to £85,000 if a bank or financial institution collapses.
However, prepaid card providers must keep your money in a separate ringfenced bank account, away from their operating funds.
This means that if the provider goes bust and has followed the rules, the bank or building society holding your money will still have it, and you should be able to reclaim it.
Holiday rule you should ALWAYS follow
WHEN paying by card abroad, you’ll often be asked if you’d like to pay in pounds or the local currency.
You should ALWAYS choose to pay in the local currency.,
This is because it ensures your card handles the currency conversion, which typically offers a much better exchange rate than the one provided by the retailer or ATM.
If you choose pounds, the retailer applies their own exchange rate, which often comes with hefty mark-ups and poor value for money.
Even with standard credit or debit cards that charge fees for spending abroad, it is highly unlikely that the retailer’s exchange rate will be better than your card provider’s.
This rule is especially important if you have a top overseas card, as their exchange rates are unbeatable.
