Using Credit Cards overseas for forex transactions

Holidaying and business trips are a part of British life, so there is more and more expenditure in foreign currency. Use of Credit Cards has proved to be an effective way for Britons to pay for their overseas expenses and they usually do not worry about cost of using their credit cards abroad. But what is the real truth about using a credit card abroad?
If you are thinking of or have been using your credit or debit cards abroad instead of cash, then you are required to pay extra expenses. Fees charged by UK banks for overseas transactions when customers use their cards overseas are on going up. Another problem that is usually not identified by individuals is that overseas establishments are encouraging customers to pay for expenses in GBP – and it’s usually at a very bad exchange rate. Though the banks and the foreign establishments gain on these transactions, it it’s the customer who looses dearly.
It is estimated that Britons will spend around 25 billion GBP on cards in the year 2007, and hidden fees and exchange rate charges will add another 500 million GBP. The exchange rate loading added by nearly every credit card provider is between 2.5% and 3% for every foreign currency transaction. This is the price per transaction that you will have to pay for each transaction you make with your UK credit card. Those fees have gone up in the last 1 year.
In July Lloyds TSB declared that it is increasing the cost of using its debit cards from 2.75% to 2.99%, and it also charges £1 as an overseas transaction fee every time as well. Lloyds claim that the increase on overseas card charges is to help pay for tighter anti-fraud controls.
NatWest has also increased its overseas loading from 2.65% to 2.75%, and its debit card transaction fee has gone up from 75p to £1.25. HBOS has pushed up its international fee on credit cards from 2.75% to 2.95%.
Using a cash machine to withdraw cash is also getting costly. Banks now generally add a standard exchange rate loading to any cash withdrawal, and most also add a service fee. Withdrawing cash from HBOS costs £1.50 per transaction. With NatWest it’s 2% with a £2 minimum fee. Lloyds TSB has a charge of 1.5% with a minimum fee of £2. A notable exception to these kinds of charges in Nationwide which has no exchange loading on its cards and charges no fee for cash machine withdrawals.
The new concern for holidaymakers is the increasing use of ‘dynamic currency conversion’ (DCC) being used by foreign retailers. This is where the shop, hotel or restaurant suggests that they will convert the bill into sterling. The benefit of this is that the UK customer can see what the price is in pounds and pence, but the exchange rates can be as much as 3% greater than those used by credit card providers. Dynamic currency conversion rates are set by the merchant and their bank. Although MasterCard and Visa state that customers must be given a choice of whether to pay in sterling or local currency and the exchange rate must be stated, the rules do not say what language the information must be provided in. The use of DCC is on the increase in popular UK destinations like Ireland, France and Spain.
Another option for paying abroad is to use prepay travel cards. They are the same size and shape as a credit card, with a Visa, MasterCard or Amex logo, but the idea is to load these up with dollars or euros before you go away. There is a mark-up on the exchange rate for loading, but there are no other charges on purchases. These can also be used in a cash machine – but for a small fee. Topping up these cards can be done online or by phone. Some have Chip and PIN security and can be frozen if a card is lost or stolen. These cards can also act as a ready-made budget for your trip as you can load the amount you want to spend – but you’ll have to resist re-loading! The problem with this kind of cards is that you have to initially deposit all the money that you want to load the card with. Then, you have to utilize the card. When you withdraw money from a cash machine, they charge you a fee. When you swipe the card at a retailers shop, the psychology that works is against you. You know that there is money in the card, so you don’t want to keep it. You end up spending more because you want to finish off the money on your card.
Most foreign currency exchange bureaux no longer charge commission, but that does not mean that there is no difference in the amount of foreign currency you can buy with your pounds. It is worth shopping around because there can be big variations in the exchange rates used. This can be as much as £33 on only a £200 money exchange. It is recommended to look beyond your own bank or building society; places like Marks & Spencer, the Post Office and Travel Agents all provide foreign exchanges, but don’t leave it until you’re at the airport – they tend to be the most expensive; you’ll pay for the convenience. You can also buy foreign currency online, but it is essential to compare delivery charges if you do. Also, you should remember that paying for currency with a credit card counts as a cash withdrawal, which means the card company will charge a cash-handling fee and immediate interest.
Personally, I always buy foreign currency notes at the local street shops. They not only offer better rates, but there are also possibilities of bargaining and negotiations. Another advantage is that you can buy currency notes from them and return them later. The street in London where there are many forex shops is adjacent to the Oxford Circus Station.