Spending Overseas
The cheapest way to pay

It's possible to super-boost your foreign currency spending power when you're abroad or buying on overseas based websites. The answer isn't traveller's cheques or bureaux de change, but simply the right plastic. Yet using the wrong card, like Halifax's, NatWest's or Lloyds TSB's nasty debit cards, can cost large.

• Abroad range of charges
• What not to use
• BEST BUYS: The top cards
• How much can you save?
• Related Articles / Discuss

Credit cards don't have to be a beach

What about good old fashioned cash when travelling?

It's much cheaper to use the right card than grab foreign exchange or travellers cheques; though the wrong card is much more expensive. So if you're off to an exotic destination where cards aren't viable, or you feel safer with some notes in your pocket when you land, or you don't have time to get the right card, read the how to get the Cheapest Overseas Currency article which includes the Travel Money Maximiser.

Abroad range of charges

Spend in a foreign currency on your plastic and there's a raft of different charges:

• A 'Load' on top of the Exchange Rate (Debit and Credit Cards).

  While exchange rates change daily, what you get always depends on the ‘Visa/Mastercard wholesale rate'. It's about the best exchange rate possible, as it reflects currencies' real interchange value.

  This should mean more Euros, Dollars or Costa Rican Colons per pound, but unfortunately almost all cards secretly add a ‘load', an extra charge usually of 2.75%. So the higher the ‘load' the worse the exchange rate you get. This means £100 worth of Euro spending costs you £102.75. Worse still, it isn't broken down on statements so you won't notice .

• Cash Withdrawal Charges (Debit and Credit Cards)

  Withdraw money from an overseas cash machine and the card provider will add a fee, usually around 2.5% of the amount withdrawn with a minimum of, around £3. Many people are aware of this charge for credit cards, but it's important to note it applies to most debit cards too.

  Many overseas banks, especially in the USA, also charge an additional fee for withdrawing cash. Little can be done about this, except trying a few different banks to find the cheapest. Thus taking larger amounts out to cover a longer period is cheaper than lots of small withdrawals, though do ensure your cash is stored securely.

• A Penalty for Spending (Debit Cards only).

  Rather sadly, a few card providers have decided to take profiteering from holidaymakers up a level. Spend on a Halifax, IF, RBS, NatWest or Lloyds TSB debit card and you'll pay a fee each and every time, e.g. Halifax adds £1.50 per transaction.

  This means that the normal ‘paying on the card's cheaper than making withdrawals' rule is defeated for these cards, so withdraw a large cash lump instead as it's cheaper.

• Unexpected Interest Charge (Credit Cards only).

  Normally repay a credit card in full at the end of the month and you don't pay any interest. Yet withdraw cash and even if it's paid off in full, many providers still charge interest, often at a higher rate than spending e.g. Halifax's One card charges 9.9% for spending, but 23.9% for withdrawing cash.

  While this isn't exclusive to withdrawing cash abroad, in the UK it's rarely noticed as credit card cash withdrawals aren't common. Those who don't pay off in full will, of course, always be charged interest.

The Hall of Shame: What not to use

Let's make this plain - do not use the following cards for spending overseas; and it may surprise you to learn the worst offenders are all debit cards.

Halifax Debit Card
Spending penalty: £1.50. Exchange load: 2.75%. Cash Withdrawal fee: £1.50

Lloyds Debit Card
Spending penalty: £1. Exchange load: 2.75%. Cash Withdrawal fee: 1.5% min £2 max £4.50

IF Debit Card
Spending penalty: £1.50 Exchange load: 2.25%. Cash Withdrawal fee: £1.50 or 1.5%

RBS Debit Card
Spending penalty: £1.25. Exchange load: 2.75%. Cash Withdrawal fee: 2% min £2 max £5

NatWest Debit Card
Spending penalty: 75p. Exchange load: 2.75%. Cash Withdrawal fee: 2.25% max £4

See a full list of charges for major UK credit and debit cards.

What should I do if I've got one of these cards?

It's the penalty for spending that makes these cards so much worse than others. For example, Halifax charges £1.50 per transaction; so buy something worth a fiver and it'd cost you £6.50 and that's before the exchange rate loading. Over a holiday lots of small purchases could add up to a huge sum. So here's a checklist of things you can do in order of preference.

• Apply for the right card and use it when you're overseas.
  
  Pick the right plastic (see below) and even if you don't use it the rest of the year, just get it out when you're on holiday. Though it will take up to four week's to get one of those cards.

• Take foreign currency with you.
  
  If it's too late to get a card, then using foreign currency is better than using one of these cards. The Travel Money Maximiser, will find you the best deal.

• Take cash out rather than spend.
  
  If you're abroad, don't have currency, and this is the only card you have; rather than paying with the card, take cash out of the cash machine and spend in cash (the opposite logic to other cards). This can make a big difference; e.g. on Halifax you'd pay a cash withdrawal fee of £1.50 for taking out £200 worth of foreign currency, but 20 transactions adding up to £200 would have a penalty of £30.

The top cards for overseas spending

With so many charges it may seem like plastic should be avoided for foreign currency transactions, yet the right cards are cheaper than any other method. However, only choose plastic for overseas spending if you pay no interest (i.e. you pay credit cards off in full every month). Otherwise concentrate on reducing your interest payment (see Credit Cards, Which One Is Right For Me?).

The Top Credit Cards

For most people, the easy route to a cheap way to spend overseas, is to apply for a credit card that you only every use for overseas spending; with a Direct Debit set up so that it's paid off in full each month.

To keep the cost down, primarily use credit cards for over-the-counter purchase transactions; if you'll be making a lot of ATM withdrawals, it's worth considering the top debit card instead.

• The Top Pick: No fees for purchases or ATM withdrawals.
  
  The overall winner is the Abbey Zero card, which has no foreign exchange loading anywhere in the world, plus charges no fee for withdrawing cash from an ATM. The only slight downer is that the interest rate when you use an ATM is the highest out of all my picks, at 25.9% APR; yet the lack of a one off charge balances this out, especially if you use the hole-in-the-wall a lot.
  
  European Load Fee: 0%. Worldwide Load Fee: 0%. ATM Fee: £0. Interest for withdrawing cash: 25.9%.
  
  
• The Next Best: 0% load worldwide, but charges for cash withdrawals.
  
  Just behind are the Post Office* and Nationwide cards, which also both have no load fee, but each charge £3 or 2.5% for ATM withdrawals, followed by 20.83% and 22.9% APR respectively (see table below).
  
  These two cards used to be the best for spending overseas, so many may already have one of them. Abbey is now the best overall, yet the difference may not be worth switching if you're a Post Office or Nationwide customer; you won't save much more, plus each card application has a small impact on your credit rating.
  
  European Load Fee: 0%. Worldwide Load Fee: 0%. ATM Fee: 2.5% (min £3). Interest for withdrawing cash: 20.83% (Post Office) 22.9% (Nationwide).
  
  

The only other card of note is the Saga card, for over-50s, which has a ATM fee of 2% (min £2) and matches the above cards for load fees in the EU, but does add a load to the exchange rate by 1% outside. It's not worth getting, but if you have it and stick to the EU it's fine.

The Top Debit Card

The Nationwide's Flexaccount Visa Debit card trumps all the other cards as it doesn't load anywhere in the world, is free of interest (unless you're overdrawn) and doesn't charge for withdrawing cash.

To get it you need Nationwide's bank account, and while its account isn't bad, it's not the best buy (see the Best Current Account article). For the money savvy willing to play, it's possible to set it up as a second current account and just pre-load it for spending before travelling abroad.

Then again, there is one other reason to stick with a credit card rather than debit card overseas, thanks to ‘Section 75' consumer protection. If something goes wrong with goods bought on the card (costing over £100), legally credit card (but not debit card) providers are jointly liable with the retailer, so you can complain to them and they'll refund you directly.

The Court of Appeal recently ruled this applies to overseas spending too. Fantastic news as tracking down overseas retailers to complain is notoriously tough (read the Consumer Rights article for more details).

See a full list of charges for major UK credit and debit cards.

Always try to pay in the overseas currency not in Pounds.

There's a growing trend when spending abroad for the retailer to do the conversion to Pounds itself, giving you a poor exchange rate you've no control over. Always check that you won't be charged in pounds. That way, assuming you're using one of the top cards, you'll get the best exchange rate possible.

Spend £1,000 worth of US Dollars in a year and withdraw £750 worth in cash using a Halifax debit card and the total fees/charges are over £120. With Abbey''s credit card it's just £15 while Nationwide's debit card doesn't charge.