Avoid Summer Credit Card TrapsPosted on: 08 July 2009 by Gareth Hargreaves
Holidaymakers paying by plastic this summer can follow our top tips to ensure they don’t pay more than they need to when making overseas purchases.
Alongside the swimming trunks and sun-screen there is one item almost all British holidaymakers won’t travel without this summer - their credit card.
Credit and debit cards have become the most convenient way to pay for meals, buy souvenirs and withdraw money from cash machines when overseas.
Last year there were 317m overseas transactions on UK-issued cards according to the UK Cards Association. We spent £19.9bn on credit and debit card purchases abroad and withdrew a further £7.9bn from overseas cash machines - up 10pc on the year before.
But while cards may be a convenient way of funding your holiday spending, if you use them incorrectly charges can quickly mount up.
Below we list 10 of the most common traps that holidaymakers fall into when flashing the plastic overseas.
1) Always Pay In Local Currency
When using your credit or debit card overseas, some shops and restaurants may offer you the option of paying in pounds sterling. Even some ATM machines now offer this option.
Customers could be forgiven for thinking this is a way to avoid the myriad charges that are levied on such foreign exchange transactions. But while they may avoid some charges, they will almost certainly get clobbered with a hugely uncompetitive exchange rate - set by the retailer, not their banks - which is likely to cost them more.
This trap (known as “dynamic currency conversion) is on the rise, particularly in popular European resorts. The UK Cards Association says holidaymakers should always check carefully what exchange rate is being used if paying in sterling; if in doubt, simply pay in the local currency it adds - most of the time this will be cheaper.
2) Tell Your Bank You're Going Abroad
If you jet off overseas your card may be stopped the first time you use it, as it is likely to trigger fraud warnings. This could leave you stranded overseas without access to cash.
The successful roll out of Chip and Pin has increasingly driven card fraud overseas so banks keep a vigilant eye on these transactions. Any unexpected overseas purchase will set alarm bells ringing, so tell your bank exactly when and where you are going.
3) Be Aware Of Any Change In Your Spending Pattern
Even if you tell your bank you are going overseas, your card could still be stopped if your bank suspects it is being used fraudulently. There are steps you can take to reduce the chances of this happening.
A spokesman for HSBC said: “As a precaution make sure you leave up-to-date contact details with you bank, including your mobile numbet. It can then contact you while abroad if there is suspected fraudulent activity or unusual spending patterns on your account.”
Before making any big one-off purchase - perhaps for an oriental rug or leather jacket - contact your bank first. Unusual spending patters like this often trigger fraud alarms. And don’t rely on just one card. Have a spare, or take cash and travellers’ cheques as well.
4) Watch Out For Card Charges When Paying Direct
Using you cards abroad can be expensive. Fees vary between banks so check exact charges before travelling.
Those using a credit card or debit card in a shop or restaurant you usually pay a “foreign loading fee”. This is a commission charge added to the exchange rate levied by your bank. Most banks charge a percentage fee of about 2.75pc. This may rise if you are outside Europe.
On a credit card this will be the only fee to pay when used direct to pay for goods and services. But most debit cards will also levy a flat “purchase fee” of between £1 and £1.50.
This means that in most cases it is cheaper to use a credit card rather than a debit card in shops and restaurants - provided you repay your bill in full at the end of the month and avoid interest charges.
5) Watch Out For Charges At ATM Machines
Credit cards may be cheaper to use when paying direct, but debit cards are always a better bet at the cash machine.
Most debit cards charge a “foreign loading fee” - again of about 2.75pc. Most banks will also charge a “cash withdrawal fee”, which may be a flat charge (Halifax charges £1.50 per withdrawal) or a percentage fee (Barclays levies a 2pc charge, with a minimum £1.50 fee and maximum £3.50 charge).
These charges mean that it is not usually cost-effective to withdraw modest sums on a daily basis; you are better off making fewer larger withdrawals.
Those using a credit card to withdraw money from an ATM will pay the foreign loading fee, a cash withdrawal fee and get charged interest on top.
This interest is charged from day one, so you can’t escape these charges, even if you clear your bill in full at the end of the month (The same rules apply to credit card cash withdrawals made in the UK). In addition the interest rate for cash withdrawals is usually higher than the standard APR charged for purchases.
6) Keep Your Card Safe
It’s easy to let your guard down when you are overseas. But you should be more vigilant about card safety overseas, as tourists are often targetted by criminals and fraudsters. Keep cards with you at all times; don’t leave wallets or handbags in hotel rooms, apartments or on the beach.
Safeguard your PIN a - don’t give it out to anyone, even if they claim to be from the police or your bank. And make sure you shield you PIN with your free hand when typing it into a keypad.
7) Keep A Copy Of Your Bank's Phone Number
Make sure you have the 24-hour contact telephone numbers for each of your cards. Keep these separate from your cards (so not in the wallet) so you can contact your bank if a card is lost, stolen, “stopped”, or you need to inform them about a change to your travel plans.
8) Check Credit Limits
As many credit cards have reduced spending limits recently. This is particularly important for those planning to pay for hire cars or hotels on their credit card. These business often “pre-authorise” payments.
The money will not be deducted from your account until the bill is settled, but in the meantime this amount is deducted from your available credit limit, so you may have less to spend than you think.
9) Use Credit Cards For Large Payments
Remember you get additional legal protection if you buy goods on a credit card. Under Section 75 of the Consumer Credit Act, the card provider is jointly liable, with the retailer for goods that are faulty or not delivered - provided the value is between £100 and £30,000.
This protection applies to overseas as well as UK purchases. In most cases it is easiest to ask the retailer for a refund, but if they refuses to co-operate, or have gone bust, then the credit card company has to offer recompense.
10) Take A Pre-Paid Card As Back-Up
Banks also offer “pre-paid” cards for overseas travel. You simply load them up with currency before you travel and use them as you would a debit card.
They are useful for those on a budget who don’t like carrying around large wads of cash, as they can be cancelled if stolen. It is possible to “top up” these cards via the internet or mobile phone. Charges vary, so shop around.
See www.moneysavingexpert.com/cards/prepaid-cards for more information.
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