Jumat, 29 Juni 2012

Britons abroad will waste £125 million in credit card charges this summer

Britons abroad will waste £125 million in credit card charges this summer

By Joanna Robinson

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Consumers are set to waste a staggering £125 million in debit and credit card charges while holidaying abroad this summer, new research has revealed. 

Britons abroad will waste £160 million in credit card charges this summer

Trouble in paradise: Britons abroad spend needless money on card charges

The survey, conducted by YouGov on behalf of prepaid card provider Caxton FX, has found that 40 per cent of Britons will fall foul of Dynamic Currency Conversion (DCC) â€" paying for goods in pounds when using cards abroad.

The trick works like this, when you go to pay you are asked if you would like to pay in pounds or the foreign currency, either by the person serving you or the machine.

Opting to pay in pounds rather than local currency when abroad exposes consumers not just to poor exchange rates but also extra charges, typically adding 4 per cent to the cost of transactions according to Caxton FX. 

With purse strings tightened, the luxury of a summer holiday is a significant investment for many but Caxton FX’s research found holidaymakers’ budgets are not spreading as far as they should. 

The research revealed some 15 per cent of holidaymakers take a risk on local exchange rates, and change currency after they reach their de stination. While more than a quarter expose themselves to bank charges by using their debit card or credit card abroad.

It added that 18 per cent of those surveyed admitted that they wouldn’t know which currency to choose when given the option, and almost one in five say they aren’t confident enough in their mental arithmetic for on the spot currency conversion so are not calculating how much they are spending in a foreign currency when on holiday.

James Hickman, managing director of Caxton FX said: ‘The number of people getting caught out by DCC has actually increased in the past year and a lack of understanding about the risk of associated charges seems to be at the heart of this.

‘An extra 4 per cent charge on every transaction could add up to some serious cash over the course of a two week holiday and some rather surprising bank statements upon return to the UK.

'However, DCC is a perfectly legal charge so it’s up to the individua l to make sure they are not being caught out by this.’

Caxton FX warned consumers who do choose to use their credit or debit card to withdraw from an cash machine abroad, to opt for withdrawing larger sums to avoid paying flat fees per withdrawal more than necessary. 

Hickman added: ‘Using your debit card abroad could expose you to a charge from your bank on every transaction, on top of a less than favourable exchange rate.

'Additionally, using ATMs at the destination airport or changing money at your resort are some of the worst options for consumers. Usually, the exchange rate will be very poor and each withdrawal can cost upwards of £1.50’.

Why you need to know about DCC

DCC occurs whenever someone opts to pay for goods, or enter the amount they wish to withdraw from an ATM, in pounds rather than the local currency. 

Typically, a holidaymaker will be charged around 4 per cent extra for using pounds, and the exchange rate is likely to be worse as it can be set by the merch ant undertaking the transaction.

Overseas retailers, restaurateurs, hoteliers and car hire firms can charge you in sterling, rather than the local currency. By doing this they can make a nice profit on the exchange rate, so you should insist on paying in the local currency.

According to Caxton FX, if a customer spends £500 on their debit or credit card on a two-week holiday, they could face £20 in DCC charges by paying in pounds instead of euros for the transaction.

Of this £20, £6.25 is an unnecessary cost since the ‘standard’ foreign exchange charge for payment in the local currency would be 2.75 per cent.

The 26 per cent of holidaymakers who use their debit card abroad are likely to face charges of at least £1.50 per transaction as well. So using an ATM three times and withdrawing £100 each time can incur you £16.50 in charges â€" £4.50 in ATM fees, and £12 dynamic currency conversion.

What can you do to avo id DCC?

A prepaid card can be the most cost effective option. It typically offers a better exchange rate and fewer charges than your debit card, and means you don’t have to carry wads of cash around with you.

There are also two debit cards on the market which don't charge foreign exchange fees. Metro Bank, does not charge any commission or for withdrawals. It is without doubt the best debit card for spending abroad but as a branch-focused bank with a new and limited network, it's probably only worth opening an account if you live in or near London, for now.

There is also the Norwich Peterborough's Gold Classic card that offers fee-free spending and ATM withdrawals while you're abroad. However, there is a £5 a month fee for the account, unless you pay £500 a month into your link account.

Prepaid cards also offer something that is particularly good at the moment â€" the option to guarantee an exchange rate. With the euro at a 22 month low against sterling, the past three weeks have allowed tourists to get more euros for their pound than at any time since 2008. 

Load your card with euros now, and you’ll get the rate at the time of loading whenever you spend them. Great if you’re heading off on holiday later in the year. 

Mark Huggins, director of AA Financial Services says that while the euro-zone remains volatile the euro could fall further. ‘If you are planning to travel, now might be a prudent time to take out a travel card and start loading it with euros. Keep an eye on the exchange rate and if it falls further, take the opportun ity to add to your holiday cash balance.’

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