Buy currency ahead of your travels, but not with a credit card

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Written by: Paloma Kubiak
29/06/2018
It’s a sensible idea to buy currency in advance of your overseas trip to get the best exchange rates. But here’s why you should think twice about using your credit card for the transaction.

Holidaymakers should know to avoid airport bureaux at all costs – as a captive audience, you’ll naturally get a poor rate on your foreign currency.

Instead, travellers are urged to buy currency in advance of their trip and to use specialist overseas credit cards or prepaid cards to get the best rates. See YourMoney.com’s Holiday money checklist for more information.

However, while putting the cost of a holiday on a credit card is an option (make sure you can afford it and pay off the amount with minimal interest), buying currency on credit card is generally a no no.

The only exception is where your credit card provider also runs foreign exchange bureaux, such as say Debenhams.

Richard Cole, chief marketing officer at holiday currency specialist, Caxton, explains: “Typically, whether getting sterling cash from a UK ATM or currency cash at a bureau de change, credit card companies class this as a ‘cash advance’. Unlike buying goods, cash advances usually attract interest from the time of the transaction in addition to the rate of exchange.”

These cash advance fees are charged as you’re essentially withdrawing cash, in the form of foreign exchange. They are also often applied to gambling transactions.

The costs vary from one provider to another, so below is a comparison of the cash advance fees charged by 10 mainstream credit card providers:

American Express

All American Express credit cards carry a cash advance fee of 3% (£3 minimum) when cardholders buy foreign currency in the UK.

Further, the transaction also carries an annual interest rate of 27.9%. However, Amex credit card holders aren’t able to buy travellers’ cheques.

Barclaycard

Barclaycard explains that buying currency using credit cards in the UK is the same as taking out cash, and the process is subject to a 2.99% non-sterling transaction fee. The same fee is also applied to anyone buying travellers’ cheques.

Further, these ‘cash withdrawals’ are also subject to a cash APR rate which can be found on your statement, Barclaycard said.

Halifax

Most Halifax credit cards charge a 3% (minimum £3) fee for cash advances, with interest on these transactions ranging between 19.9% and 27.9% APR for new customers (existing customers will have different rates depending on their circumstances). Interest is charged daily, on any amount from, and including, the date the amount is added to the account until it is paid off.

If you were to exchange £500 for euros on a standard credit card, this would mean a £15 cash advance fee, and leave you with €440.70, Halifax calculated.

However, the Halifax Clarity credit card does not charge the cash advance fee and anyone with the Halifax FlexiCard will be charged a lower interest rate of between 6.4% and 14.9% APR.

Buying travellers’ cheques also attracts the 3% fee, but isn’t charged for Clarity cardholders.

Lloyds Bank

Lloyds Bank credit cards charge a 3% (minimum £3) fee for cash advances, with interest on these transactions ranging between 19.9% and 27.9% APR for new customers (existing customers will have different rates depending on their circumstances).

Interest is charged daily, on any amount from and including the date the amount is added to the account until it is paid off.

However, customers with a Low Rate card pay interest between 6.4% and 14.9% APR.

Buying travellers’ cheques also attracts the 3% fee.

MBNA

Standard MBNA products charge a 5% (no minimum) cash advance fee. For new customers, the interest on cash transactions is 27.9%, but for existing users, the rate will depend on their circumstances.

Buying travellers’ cheques also attracts the 5% (no minimum) cash advance fee.

Nationwide

The cash advance fee is 2.5% (minimum £3) of the amount purchased and it’s also subject to interest of between 15.9% and 19.9% which is charged from the date the transaction was applied until the amount is paid off in full.

Nationwide says the purchase APR rate was reduced from 27.9% in March 2018.

As an example, if you bought £250 of foreign currency, you’d incur a £6.25 fee while for £500, it would attract a £12.50 fee, though be sure to factor in the interest too.

Nationwide says around 95% of merchants classify travellers’ cheques as a cash transaction and buying these from Nationwide using your credit card attracts the 2.5% (minimum £3) cash advance fee and cash interest.

Sainsbury’s Bank

Credit card customers buying currency ahead of their trip at any Sainsbury’s Bank Travel Money branch will have the cash advance fee refunded.

However, buying currency in the UK at any other travel bureaux will attract a cash advance fee of 3% (minimum £3).

While the APR/interest on this charge varies per customer, the headline cash rate according to Sainsbury’s is 25.9%.

Sainsbury’s doesn’t sell travellers’ cheques, but adds that if alternative outlets sell them, Sainsbury’s credit card holders would be subject to the same cash advance fee.

Santander

Santander Zero credit card users don’t face a cash transaction fee for buying foreign currency in the UK, but the transaction will still be subject to the cash rate at 18.9%.

For All In One credit card holders (£3 a month fee), there’s a 3% (minimum £3) cash withdrawal fee and interest will also be charged (29.9%).

While the card offers 0% on purchases for 30 months, Santander confirms this doesn’t apply to buying foreign currency in the UK. However, the card also offers 0.5% cash back, and Santander said this applies to transactions both in the UK and abroad.

Santander adds that with both credit cards, there are no cash transaction fees when withdrawing cash abroad in the local currency. But the purchase of travellers’ cheques is treated the same as providing cash from an ATM.

Tesco Bank

Tesco Bank charges a cash transaction fee of 3.99% for non-sterling currency purchases, except for those bought at Tesco, where this fee is waived.

But interest is charged and varies per customers, but typically ranges between 24.9% and 29.9%.

Exchanging £100, £250 and £500 to foreign currency on credit card would attract £3.99, £9.97 and £19.95 respectively, before interest is applied.

You can’t buy travellers’ cheques at Tesco Travel Money bureaux.

Virgin Money

As cash transaction fees, Virgin Money charges a 5% fee, with no minimum amount. The typical APR/interest on these transactions is 27.9%, applied from the day of the transaction.

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