'I paid in pounds... but RBS charged me overseas fees'

Spencer Herbert, a MoneySaver from Kent, used his RBS debit card to spend £47.40 on crisps, chocolate and duty-free make-up on a flight from London Gatwick in November. But when he returned home, he noticed RBS had added 'foreign purchase fees' of £2.10.

While most standard debit cards only charge conversion fees for spending in foreign currencies, RBS and sister bank NatWest add fees for all 'overseas' spending – even if a customer buys something in sterling. So if, for example, you opted to pay in pounds in a restaurant abroad rather than local currency, you'd be charged extra fees (though as we always say, you should pay in local currency).

See our  guide for more info on spending abroad without fees.

'How many other customers have they taken fees from?'

Spencer told us he was shocked to find that his on-board purchase incurred a foreign exchange fee. He told us: "The brochure was in pounds, I paid in pounds and my receipt was in pounds. It was only when I returned home and did my accounts that I noticed RBS had applied foreign transaction fees." 

"The concern is, how many other customers have they taken fees from when paying in pounds?"

After he complained, RBS told him the fees had been applied because the retailer, Virgin Atlantic, had recorded his location as being in the USA – even though the flight was from London to Antigua. We've asked Virgin Atlantic what its policy is for recording customer locations on flights, and will update this story if we hear back.

RBS has now refunded the charges in this case, but told us it remains company policy to charge foreign transaction fees on sterling transactions deemed to have been made overseas, meaning others could still be caught out.

How do foreign purchase fees work?

Using a 'bog-standard' debit card to spend in a foreign currency while abroad will often incur nightmarish fees – see Debit cards from hell for a full list of cards to watch out for. That's why we always tell people to use a specialist travel credit card when they go away rather then their usual plastic.

There are various types of fees you may be charged on a debit card, including:

• A 'spending penalty', typically between 50p and £1.50 per transaction, which is added by some (but not all) debit cards.

• A 'load fee', also known as a 'foreign purchase fee' or a 'non-sterling transaction fee', which is typically up to 3% of the transaction. This is what Spencer was charged by RBS. Usually this fee is to cover the costing of converting your transaction back into pounds from the local currency, though in this case there was no conversion as the transaction was already in pounds.

RBS and its sister bank NatWest don't charge a spending penalty on their cards, but they do charge a 2.75% foreign purchase fee on all debit cards (with a minimum fee of £1 per transaction). Their terms and conditions state this charge applies to "payments made outside the UK (for example, purchasing goods in a shop)", as well as any payments in a foreign currency. 

Crucially, RBS has confirmed to MoneySavingExpert.com that payments made outside the UK incur the fee even if the transaction is in pounds. This is unusual – Bank of Scotland, Barclays, First Direct, Halifax, Lloyds, Nationwide, Sainsbury's Bank, Santander, Tesco Bank and TSB all told us they wouldn't charge a foreign purchase fee for a sterling transaction.

How can I avoid unexpected fees?

If you're an RBS or NatWest customer, it's important to be aware that your bank will charge foreign purchase fees based on your location as recorded by the retailer. This means you'll need to be especially careful when spending in locations which could be unexpectedly classed as 'overseas' – which could include planes, ferries and cruise ships. As Spencer's story shows, you can be charged a 'foreign purchase fee' even on sterling transactions.

If there's any risk your transaction could be classed as an overseas one, it's important to avoid spending on a debit card from hell. Instead, look at taking a specialist travel credit card. These let you spend at top exchange rates and don't add any fees – see our Travel Credit Cards guide for full info and top picks.

If you are buying overseas, you should always ask to pay in local currency too. If you choose to pay in pounds, the retailer's bank will do the currency conversion, and you're likely to get a poor rate. If you pay in local currency, your card will do the conversion – and if you've got a top travel card, the rate will be unbeatable. See Martin's Always pay in euros blog for full info.

What does RBS say?

An RBS spokesperson said: "We are sorry that the customer was unhappy with our service in this instance. When a customer makes a transaction outside of the UK our Foreign Purchase Fee is applied, regardless of currency.

"However, in this case, we were happy to refund the customer the fee charged."

Have you been affected? Let us know

If you've encountered a similar issue when using an RBS or NatWest card, let us know at news@moneysavingexpert.com.