Why you shouldn’t buy travel currency in the UK with your credit card

0
Written by: Paloma Kubiak
22/06/2017
If you’re heading abroad this summer, exchanging money in the UK ahead of your travels is a sensible idea. But for many travellers, it's best to avoid paying the transaction with your credit card.

Currency experts say it’s wise to exchange your travel money in advance of your trip to get the best rates and to avoid the lure of poor-value airport options.

And given the battered state of the pound following the Brexit vote and the General Election, holidaymakers need help to stretch the value of their holiday cash.

If you plan to exchange currency in the UK, it’s best to avoid paying for the transaction by credit card, unless you have one that doesn’t charge a ‘cash advance fee’ or it’s provided by an issuer that also runs its own foreign exchange bureaux, such as M&S.

Credit card issuers largely charge a ‘cash advance fee’ when you withdraw money from an ATM. The same fee also applies to gambling and betting transactions, as well as buying foreign currency and travellers’ cheques.

The costs vary from one credit card issuer to another, and more importantly, the transaction also charges interest on the amount from day one. According to Andrew Hagger of Moneycomms, interest rates are typically at 27.9%.

Comparison of cash advance fees

Below is a comparison of cash advance fees charged by 10 mainstream credit card issuers when customers use their credit cards to buy foreign currency or travellers’ cheques in the UK:

  • American Express: £3 or 3% fee (whichever is the greater). Travellers’ cheques can’t be bought on an American Express credit card.
  • Barclaycard: 2.99% or minimum £2.99 fee.
  • Halifax: The Halifax Clarity card doesn’t charge a cash advance fee but other Halifax credit cards charge 3%.
  • Lloyds Bank: 3%.
  • MBNA: 5%.
  • Nationwide: 5% (minimum £3).
  • Sainsbury’s Bank: No cash advance fees or foreign exchange fees.
  • Santander: The Santander Zero Credit Card doesn’t charge a cash advance fee. Other Santander credit cards charge 3% (minimum £3).
  • Tesco Bank: No cash advance fee.
  • Virgin Money: 5%, no minimum fee.

How much extra could it cost you?

If you buy £500 of currency or travellers’ cheques with a credit you may be charged interest from the day you make the transaction – typically at a rate of 27.9% which is much higher than purchases which tend to be around 18.9% or 19.9%, according to Hagger.

He explains: “The charge for £500 for one month costs approximately £11.63 plus the cash advance fee which could be as high as £25 – so more than £36 in total.

“The best options are to use a card such as Halifax Clarity where there is no charge for cash transactions abroad.

“The M&S Credit Card doesn’t charge a cash advance fee if you order your travel money from M&S and its website says cardholders also get a preferential exchange rate on currency purchased.”

He adds that taking cash out on a credit card should be seen as a last resort or emergency because of the charges.

“I would recommend taking some currency with you by ordering it before you go and if you need to draw any cash when you’re away, then a preloaded currency card or a debit card is a cheaper option.”

There are 0 Comment(s)

If you wish to comment without signing in, click your cursor in the top box and tick the 'Sign in as a guest' box at the bottom.

Are you a first-time buyer looking for a mortgage?

Look no further, get the help you need by searching for your perfect mortgage

Which ISA is right for you? A round up of the six products available in 2017

From cash to innovative finance to lifetime, here's our guide to the ISA products available to savers this yea...

Guide to buy-to-let tax changes

In late 2015, former Chancellor George Osborne announced a range of  tax measures aimed at landlords, which t...

A guide to switching energy provider

All you need to know about switching from one energy supplier to another.

What will happen if rates change

How your finances will be impacted by a rise in interest rates.

Regular Savings Calculator

Small regular contributions can build up nicely over time.

Online Savings Calculator

Work out how your online savings can build over time.

Five fund tips for a 0.25% interest rate environment

With interest rates stuck at a record low 0.25% and expectations rates could fall to close to zero, here are ...

Protecting family wealth: 10 tips for cutting inheritance tax

Inheritance tax - sometimes known as 'death tax' - can cause even more heartache for bereaved families. But th...

Travel insurance: Five tips to ensure a successful claim

Ahead of your summer holiday, it’s important to make sure you have the right level of travel cover or you co...

Investing your money

Alliance Trust Plc gives you smart insight into how to invest your money

Money Tips of the Week

Read previous post:
2350984-mortgage-application-form
Double digit boost in mortgage lending in May

Mortgage lending hit £20.1bn in May, according to figures released from mortgage lender trade body, the Council of Mortgage Lenders...

Close