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

Paloma Kubiak
Written By:
Paloma Kubiak

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.”

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