The big travel currency rip-off

A consumer watchdog estimates that we spend £1bn a year buying foreign currency. Robert Powell takes a look at how to avoid these rip-off charges...

Less Costa del Sol or Costa Brava, and more cost-a lot. That’s the verdict of a Consumer Focus report looking into foreign currency exchange fees.

The consumer watchdog estimates that we spend £1bn a year when changing travel money. The Office of Fair Trading (OFT) is now investigating the report’s allegations.

Misleading adverts

Consumer Focus has filed a super complaint to the OFT on the back of the report. The watchdog has asked the regulator to investigate as it is unclear how many exchange fees are warranted, and how many are excessive.

The consumer group is worried that a combination of complex charges and poor or misleading information is leaving travellers out of pocket. It claims that there is no good reason why the charge for converting £500 to euros can vary from £10 to more than £30.

The report estimates that Brits spend around £27bn every year while on holiday. Nearly half of this spend is made using cash exchanged in the UK. But despite this high percentage, only 29% of people shop around before arranging their currency conversion.

One of Consumer Focus’ three chief concerns is that holidaymakers are being misled by marketing phrases such as ‘0% commission’ and ‘competitive rates’. Cash exchange rates often already include mark-ups issued by suppliers, and hence are not ‘fee free’. The group says the use of such tactics make it difficult for consumers to compare currency exchange facilities.

But cash is not the only problem with travel money.

Bank exchange fees

The Consumer Focus report also identifies card fees levied on travel money bought in the UK as a major problem.

The group says that these fees do not reflect the actual costs. Debit card payments cost on average 9p to process, while credit card payments are 37p. But despite this, charges for buying currency with a card are typically 1.5% to 2% of the amount exchanged.

Complex card charges

Paying by plastic while abroad is a further problem. According to Consumer Focus, 40% of holiday spending involves the use of cards. ATM withdrawals account for 15% of this, while debit card spending makes up 14% and credit card purchases 12%.

However a majority of credit cards will levy fees on these overseas transactions. Consumer Focus says these fees are unnecessarily complex and confusing for customers. The group claims charges vary significantly and hence make it difficult for travellers to shop around for better deals.

Several charges often apply to overseas transactions including exchange fees (or loading fees) and ATM fees. Debit card exchange fees are usually levied as 3% of the currency amount, while ATM fees can stretch up to £4.50. Cash withdrawal fees on credit cards are often even higher than this.

However there are still a few accounts that offer completely fee-free transactions while abroad.

Fee-free credit cards

Halifax’s Clarity Credit Card is one of the best accounts around for holiday spending. It offers 0% exchange fees and zero ATM fees. However you will be charged interest from the moment you withdraw any cash; even if you clear your whole bill. The card has a Representative APR of 12.9%. The rate at which your cash with be exchanged is determined by MasterCard. This varies day to day and can be checked on the MasterCard website.

Sainsbury’s Gold Card is another good option. Again, the account has no exchange or ATM fees and the conversion rate is set by MasterCard. But unlike the Halifax deal, you won’t pay any interest on cash withdrawals if you pay off your balance in full every month. The purchase APR is also low at 9.94%. However to get hold of this account you will have to pay a fee of £5 per month.

Saga and Nationwide also stock overseas spending cards; although you will have to jump through a fair few hoops to get hold of them. Head over to our credit card comparison centre to find out more.

Debits cards

Current accounts with fee-free overseas spending facilities are fairly thin on the ground. The Santander Zero account is one of the only deals that is 100% fee free. The downside to this is that only existing savings account (holding over £10,000), mortgage or investment customers are eligible for this deal.

Norwich & Peterborough Building Society’s Gold Classic and Light accounts also offer 0% on currency exchanges and ATM withdrawals.

Currency cards

A further alternative is to go for a pre-paid currency card. These accounts work a bit like regular debit cards: you top them up online and then spend like you would any card when abroad.

Here are the top currency cards around at the moment:

As you can see, FairFX offers the best exchange rates, but charges for ATM transactions. The other cards are all completely fee free, apart from inactivity fees (for leaving your card dormant for over a year) and cashout fees. My Travel Cash also offers 1% cashback on all overseas purchases.

All of the providers also offer global cards that can be used for purchases in any currency. However these accounts do all charge conversion fees ranging from 1.5% to 2.99%.

And one final point. Whenever you make a transaction overseas always remember to press the local currency option on ATMs and chip-and-pin handsets – not the sterling option. This will ensure that your bank – not the local bank – handles the conversion.

Your tips

How do you exchange your holiday money?

Let us know using the comment box below.

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