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What are foreign transaction fees?
In the UK, generally, when you spend on a debit or credit card, there is no additional fee to do so. However, when you spend in a different currency – because you are abroad, or online, or any reason, did you know that most cards will charge you additional fees on what you spend?
It is typical of card providers to add a fee of around 3%, so broadly this means for every £100 you spend, it is costing you £103.
For example, my main bank account is a Natwest select account . I have been with them a while and have no intentions to change – I am a happy customer.
However, this is what I would be charged if I spent in a currency that isn’t GBP with my current account debit card:-
In addition to this, other debit cards also add a flat fee, usually 50p to £1.50, when you spend overseas – and this amount isn’t linked to how much you spend!
How can I avoid non-sterling transaction fees?
The first step is to check if who you currently bank with already offers non-sterling transaction fees.
At the time of writing, these are some of the banks that do not charge any foreign transaction fees on purchases. This also means that they charge a ‘real’ exchange rate – see below for what this means, but here is how Algbra describe the Mastercard exchange rate
Algbra – 1.5% cashback (mobile wallet payments – max £22.50 per month)
This is my current favourite card for travelling as I get 1.5% cashback on every purchase I make using Apple Pay.
The cashback takes up to 7 days to show, and 1 small downside is that you can’t see exactly which transaction the cashback is linked to. In theory, this is unimportant, but it is nice to see exactly what purchase the reward is linked to.
Algbra give 1% cashback on usual debit card payments.
Chase Bank – 1% cashback (max £15 per month)
Max £1,500 per month cash withdrawals.
No credit check – max £300 per day ATM withdrawals.
£175 switching bonus if you are eligible
There are various credit cards available – please read this MSE article for advice about them. I may come back and update this at a later date, but I need to be careful what I say as wouldn’t want to encourage credit irresponsibly.
What if I need cash?
I understand many of you, for good reason, would not want to go abroad with no cash at all.
However, there are various reasons you may want to consider limiting the amount of travel money you exchange and take with you abroad:-
- It is expensive – quite simply, their profit margin is built into the rates.
- It is more secure
- Would you rather carry $1,200 on a plane with you, or a small plastic card that you have the ability, almost certainly at your fingertips, to freeze at a moment’s notice?
- It is less hassle
- To use the financial example above, not only would I be saving $25.96, I would also be saving myself a trip to the Post Office!
- It is psychologically easier
- Sometimes holiday money can feel a bit like monopoly money – you may get to the end of your trip and have lots left over, so of course you think you may as well go a little wild. However, what you have in your hands is real money – whilst I see no problem in hedonistic, carpe diem thinking, it is important to remember that the money is in fact a real currency with real value, not something to be used up before you step on the plane!
- You won’t need to guess how much to spend
- You may have a holiday budget, but depending on how you travel, it doesn’t mean this is accurate. Rather than guessing how much you might want to spend before you go, and converting that, you are better off having your budget in a seperate account (one of the ones you have opened specifically for spending abroad), and then at least that way if you do need more (and you have it!), you can just transfer it in with your phone.
- You won’t lose on the way back
- You may not have a spending spree like some do, but if you want to exchange when you get home, you will again be losing money by converting it.
What is the real exchange rate?
Quite simply, the real exchange rate is the ‘true’ exchange rate – i.e what you would get on an open market. When I or others talk about this rate, what we mean when we say you are getting a real exchange rate is basically that there are no hidden fees or commission built into the exchange rate.
Therefore if you are being offered the Mastercard or Visa exchange rate, you are getting a near-perfect exchange rate (and there is no way to get any closer).
To use as an example, the Post Office advertise that there is 0% commission if you buy foreign currency from them.
However, whilst this may be true in one sense, the reason for this is because they build into the exchange rate.
If I wanted to exchange £400 into Euros right now (£400 is their minimum – which is another problem), then it would cost me £400.56 to get €450.
However, if I were to spend this amount on my Algbra or Chase card, with no fees or commission, then I would get the Mastercard exchange rate.
So rather than receiving €450, I would in fact receive €468.05 – a whopping €18.05 difference!
I know a lot of you use Revolut cards, and even that is a much better option. There is an additional fee at the weekend, but even so, you would still get an extra €15.87 compared to the Post Office.
As you can see, 0% commission doesn’t really mean 0% commission.
Should I pay in pounds if offered abroad?
When asked abroad, you should always pay in the local currency. Given you will now be using a card that doesn’t charge you fees or commission, you do not want to accept their exchange rate which will have a large fee built in.
Do I need to switch my bank account?
You do not need to switch your bank account to benefit from fee-free spending.
My main bank account is with Natwest – i.e that is where my salary goes into and my bills go out of – but I use my Algbra card for any foreign spending so I get 1.5% cashback and no fees when spending in a foreign currency.
Are pre-paid travel cards worth it?
Lots of people like this option – you can either exchange money before you go (but it sits on a card, rather than as cash) or you can load it up with pounds and just let it exchange for you as you send.
I personally don’t think this is worth it – I love the flexibility of spending as I go on my Algbra or Chase card, receiving cashback and getting a near-perfect exchange rate as I spend. However, here is a quick rundown if you did want to look into it – though as always, MoneySavingExpert can tell you more than I can!
Revolut (mentioned above) doesn’t charge exchange fees for most currencies during the week, but at the weekend charges a 1% fee. However, it does allow you to exchange currencies during the week to then spend at the weekend. You can exchange up to £1,000 in a 30-day period before having to pay any additional fees.
I think Revolut is worth getting, even if just for the free digital card (there is a £4.99 charge for a physical card). I personally don’t exchange currencies in advance, but it is a very useful feature.
Other popular cards are Wise and Currensea – neither of these are bad options, and in fact, Currensea will give you a free £10 after you have spent £100 (and it will only cost you an extra 50p or so to use it – 0.5% fee) – but even a small fee is a fee.
I used my Currensea card when I travelled to Poland recently – I spent enough to get the free £10, then it just stayed in my wallet as a handy back-up.