If you are heading off on your summer holidays, make sure you pack the right plastic. Taking the right card on holiday can save you a lot, leaving you with spare cash to spend on more enjoyable things.
A credit or debit card that is free to use in the UK can suddenly start charging you when you step onto foreign soil. For example, many cards charge a transaction fee every time you use them abroad. Known as a non-sterling transaction fee, this is typically around 3% of whatever you spend. With debit cards, there may also be other charges for overseas use, in the form of a purchase fee, for example. Santander is one of the worst offenders for this, with a £1.25 purchase fee on top of a 2.75% non-sterling transaction fee.
These fees can mean that a succession of small card payments while on holiday can quickly add up to a hefty fee. Using a contactless debit card to buy a coffee, say, can be very expensive – a €5 breakfast of a coffee and a croissant every day for a fortnight would cost £61 in total, but there could be a further £21 to pay in fees, warns financial product researcher Defaqto.
Something else to watch out for is cash machine charges. Once again, a card that costs you nothing at home could transform into a fee-charging pain once you are abroad, with many debit cards levying a 2.75%-3% fee every time you take some money out. (That’s on top of any charge the cash machine might itself levy.)
How to avoid the fee trap
The good news is there are credit and debit cards you can take abroad and use fee-free. You just need to plan ahead and open an account in time to get the card before you go on holiday. The best credit card to use abroad is Halifax’s Clarity Mastercard, according to money-saving tips site Money Saving Expert. “It has been one of our top picks for years due to its great feedback, low rates and no fees on spending or withdrawing cash abroad,” says Helen Saxon on the site. “It’s a Mastercard too, which typically offers better rates than ones from other issuers.”
The only thing to be aware of with this card – as with most credit cards – is that you’ll be charged interest at 18.9% APR on cash withdrawals from the minute the money leaves the cash machine. You can avoid this by paying off the amount straight away, but if you do plan to withdraw cash using your credit card, you may be better off with the Barclaycard Platinum Travel. It charges no fees on spending or cash withdrawals, and doesn’t charge interest on cash withdrawals either, so long as you pay off your balance in full each month. Just don’t withdraw cash in the UK – if you do, it charges 2.99%.
As for debit cards, your best bet is to look to the so-called “challenger” banks, as they offer far better deals. The best of the bunch is Starling Bank. Its debit card has no non-sterling transaction charges or cash withdrawal fees, regardless of where you use it. The card is attached to a current account, but you don’t have to switch from your main current-account provider to get the benefits, so it could make a great holiday account. The only drawback is that it’s an app-only account, so you’ll need to have a smartphone.
Assuming you’ve got the right plastic in place, just take care not to fall at the final hurdle. While you are abroad you may be asked which currency you want to pay in – always pay in the local currency. If you choose to pay in sterling, the shop or restaurant can set its own conversion rate to calculate your bill, and this is usually much worse than the rate your bank would use in its own conversion.
Pocket money… Virgin’s gimmicks fail to impress
► Lloyds Bank is “slashing” the interest it pays on its Club Lloyds current account from 2% to 1.5% from July, says Emma Gunn on ThisisMoney.co.uk.The move will be a blow to those using the in-credit interest to earn a rare near-inflation-beating rate on their savings. Bank of Scotland – which is part of the Lloyds group – is making the same cut to its Vantage account.
► Virgin Money has launched a savings account that offers interest in air miles with Virgin Atlantic rather than cash, says Karl Talbot on Money Saving Expert. To collect Flying Club miles, you’ll have to lock away your cash for a year, and in return you’ll earn 1,400 miles for every £1,000 saved. These air miles can then be exchanged for rewards, such as upgrades and companion tickets.
If you’re able and willing to lock away £15,000 for a year, you could earn 21,000 miles – enough for a return flight to New York. However, bear in mind that taxes, fees and carrier-imposed surcharges
are still payable, meaning a “free” Virgin Atlantic flight to New York could still cost you a few hundred pounds. Moreover, although this gimmick might sound appealing, the top one-year fix on the market from app-only Atom Bank pays 2.05%, “blowing the Virgin account out of the water”.
► Fraudsters who pose as financial-services professionals are conning an increasing number of investors into purchasing sham assets, says Harry Brennan in The Daily Telegraph. The number of investment scams reported to charity Citizens Advice in 2017 more than doubled compared with the previous year.
One of the worst areas are scam binary option offers. This is where you bet on whether the price of an asset will go up or down before a certain future date. DIY investors lose more than £87,000 to binary option scams every day, says fraud reporting centre Action Fraud, with numerous dodgy firms offering to take your bets before vanishing with your money.
While the sale of these products to retail investors will be banned in the UK from July, plenty of other scams will rise to take their place. Investors should always check the Financial Conduct Authority’s (the City regulator) Financial Services Register to ensure an investment firm is properly licensed before doing any sort of business with it.