Avoid these sneaky charges on holiday!

Rachel Wait takes a closer look at the pros and cons of prepaid currency cards and examines some of the other ways to pay when you're on holiday.

Taking a holiday abroad can work out to be very expensive. I should know – I’ve just returned from my honeymoon in Costa Rica.

It’s not just paying for the holiday itself that’s pricey, it’s the spending when you get out there. After all, the majority of credit cards and debit cards will charge you a fee every time you use your card abroad – whether it’s a foreign transaction fee, or a charge for withdrawing money from the ATM.

In fact, recent research from the Post Office has revealed that holidaymakers are set to shell out £62 million in charges for using their credit cards overseas during the rest of the year. Ouch.

So what can you do to avoid these fees? Well, one option is to get a prepaid currency card.

The advantages

There are several prepaid currency cards on the market right now. To view a full breakdown of some of the best ones around, take a look at The best cards for spending abroad.

One of the advantages of using prepaid currency cards is that you can simply load up your card with cash and off you go. If you need more money later down the line, all you have to do is log on to the relevant website and reload your card.

But the real benefit of using a prepaid currency card is that in many cases you won’t be charged a foreign transaction fee when you spend on the card, nor will you be charged a cash withdrawal fee at the ATM. What's more, you'll generally get a competitive exchange rate.

I’ve long thought prepaid cards are a good idea. After all, I’m fed up with getting stung by the fees on my credit card every time I go on holiday. So, being the savvy personal finance writer I am, I packed up my suitcase and chucked in a couple of prepaid currency cards for luck.

As I was off to Costa Rica, I chose the FairFx Dollar Card (most places in Costa Rica accept American dollars) – which doesn’t charge a foreign transaction fee – as well as the FairFx Anywhere card – which doesn’t charge a fee for ATM withdrawals (but you will still be charged something as I will later explain).

Are they as good as they appear?

So off I went merrily paying for meals and this and that with my FairFx cards, thinking how clever I was. And to start with, I really thought that my prepaid currency cards were the best thing on Earth.

However, a couple of days into my holiday, I started to discover some catches. For a start, some places in Costa Rica were charging me in dollars but then converting the amount into the Costa Rican colon (their currency). Because they did this as I paid, I was none the wiser until I later checked my balance and discovered I was being charged a transaction fee each time. (Admittedly that was really my fault for not checking sooner.)

Secondly, my Dollar card started to get a little low on funds. As a result, I had to use the internet so I could reload it. At one hotel, I was literally in the middle of nowhere, so I ended up forking out $5 for the privilege. Humph.

What’s more, when I went to withdraw some extra funds on my Anywhere card (after I realised I should stop paying with my Dollar card), I was still charged $1.50! Ugh! That's because even though the Anywhere card doesn't charge an actual fee for withdrawing money, it does still have a 1.5% transaction charge for converting the currency from Sterling to dollars. Of course, you could argue that at least my card wasn't charging me another fee on top of that - like a standard debit card would do. But it did make me think that maybe I should have just brought more cash with me in the first place, rather than relying on my card.

I was also charged another $2 ATM fee for a transaction in Miami (stopover) when I didn’t even withdraw any money – still a bit baffled about that one.

And finally, the problem I now have is that I still have around $100 on my Dollar Card. As I’m not planning to head to the States any time soon, I may have to withdraw that money – in which case I will lose a further $2. That said, FairFx doesn’t charge you for leaving funds unattended on your card for a set period, so I could just leave it where it is.

Additional fees

It’s also worth bearing in mind that some prepaid currency cards will charge you an initial application fee – FairFx is currently charging £9.95. However, you can avoid this if you sign up through our exclusive lovemoney.com link.You are also likely to have to pay a fee if you use your credit card to top up funds on your currency card - so make sure you use a debit card.

Additionally, some cards have a minimum loading amount which can be as high as £100. If you're just coming to the end of your holiday and you need some extra cash, this isn't very convenient.

To compare a full list of fees, read The best cards for spending abroad.

The verdict

So what’s my overall verdict? Well, if you’re someone who travels on a regular basis, particularly on business, and you have easy access to the internet (so you’re not having to fork out to use it each time you want to top up your card), I’d say a prepaid currency card is an extremely useful bit of plastic to have in your wallet.

After all, it’s a more secure way of carrying around money – rather than having stacks of notes stuffed in your wallet. And if you’re regularly travelling to the same place (or at least somewhere that accepts the same currency), you won’t have to worry about having money left over at the end of the trip.

However, if you’re only going on the odd holiday here and there, I’m not completely convinced that prepaid currency cards really save you much money. That said, I probably will give them another whirl. I am already considering getting the FairFx Euro Card so that I can use it if I decide to go to Europe next year.

Other options

If you’re not interested in getting a prepaid card, are there any other options? Fortunately, there are a handful of debit and credit cards that are generous enough not to charge you for using your card abroad.

If you’re a Nationwide FlexAccount customer, you might already know that you can currently enjoy free cash withdrawals with your debit card in Europe, as well as fee-free spending abroad providing you’re in the EEA, Turkey, or Israel. If you’re outside of these areas, you’ll be charged a foreign transaction fee of 1%.

However, the bad news is that from November Nationwide is introducing a 2% fee for all non-UK transactions, as well as a fee of £1 for any cash withdrawals made abroad. As a result, it might be time to ditch that debit card and look at the following options instead.

Good credit cards to use when you’re abroad include the Santander Zero credit card, the Halifax Clarity credit card, the Post office Classic credit card, the SAGA credit card and the newly launched Metro Bank credit card. If you use any of these cards, you won’t get charged for foreign transactions, providing you clear your debt entirely when you receive your bill.

What’s more, the Santander Zero credit card, Halifax Clarity credit card and Metro Bank credit card are also good for withdrawing money abroad because again, you won’t have to pay a fee. That said, if you do withdraw money on your credit card, watch out! You will be charged interest from the day you withdraw your cash – you don’t get 50 days or so interest-free. And interest rates can be high (Halifax charges 12.9%, Santander charges 27.9%, and Metro Bank charges 13%).

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