Card, cash or cheque? The best way to spend overseas
- Analysis from Defaqto has revealed 40% (95) of credit cards charge as much as 2.99% for international transactions, and 16% of debit cards (20) demand the same fee.
- Holidaymakers also need to watch out for purchase fees and cash machine withdrawal charges
- Pre-paid cards, cash and traveller’s cheques offer other ways to pay on holiday – but these can come with drawbacks too.
Many people will be heading abroad this summer, having planned a holiday months ago. However, far less time is likely to have been spent considering how they will pay for things once they’re on holiday. Leaving it to the last minute or simply relying on debit or credit cards could result in a number of unexpected costs and ultimately a far more expensive trip. The latest insight from financial information business, Defaqto, reveals how to avoid overspending overseas and the potential pitfalls to be aware of.
Taking a credit card on holiday can be comforting in case you need additional funds, and it provides you with consumer protection relating to anything you buy costing between £100 and £30,000. However, credit card users could face a number of charges whilst abroad, so it’s important to research the different features among the 235 credit cards on the market. Those charges can include:
- International transaction fee – Using your credit card abroad comes with a charge as a percentage of what you spend. The average fee charged is 2.89% both within and outside of Europe, but ranges from 1.40% to 2.99%, with 40% (95) of credit cards charging the highest amount of 2.99%.
- Charges for cash machine withdrawals – 90% of credit cards also charge if you use them to take money out of a cash machine. The average charge is £3.42 for withdrawing the equivalent of £100 in local currency. Not only that but some cards will charge interest from the date of withdrawal.
Only 23 (10%) of credit cards do not charge for transactions within Europe or further afield, and many of these cards are the more difficult to obtain “premier” type cards. Some of the main providers of these cards include Barclaycard, Halifax, Lloyds Bank, Metro Bank, Nationwide, Natwest/RBS, Post Office Money, Santander and Virgin Money.
Rather than using a credit card you can use a debit card where the money comes straight from your current account. Exchange rates are based on a daily Foreign Exchange rate set by your bank.
Current account providers have different charges that can be applied: a foreign transaction fee and a debit card non-sterling usage fee if you use your debit card for a purchase, and a cash withdrawal fee for using an ATM abroad.
- Foreign transaction fee – This fee tends to be slightly more favourable with debit cards than credit cards. The average charge fee, where charged, is 2.69% in both Europe and worldwide. Charges range from 1.00% to 2.99%, but only 17% (15) of debit cards demand the highest amount
- Debit card non-sterling usage fee - 36% (32) of debit cards charge between 0.5% and 2.75% on purchases using a debit card made abroad; however, there are 56 debit cards (64%) which do not charge a non-sterling transaction fee.
There are currently 88 current accounts to choose from, and most of these accounts charge one or other of these two fees, but 25% (22 accounts) charge both fees.
- Combined fees – Taking into account the foreign transaction fee and the non-sterling usage fee there are only two accounts (Cumberland Building Society and Metro Bank) which do not charge additional fees for using debit cards in Europe, and only Cumberland doesn’t charge for using further afield. The lowest combined fee is 1.75% in Europe and 2% elsewhere, with an average combined fee of 2.9%. The highest fee is 4%, and 24% (21) of debit cards charge over 3%.
- Cash machine withdrawalfee – Using a debit card to withdraw cash abroad also attracts a fee, with 9 debit cards (10%) taking as much as £3.50 or more for a £100 withdrawal in a foreign country. However, 14 debit cards (16%) do not charge for taking out money from a cash machine in Europe and just one of these (Metro Bank) charges for withdrawals in the rest of the world. Unlike a credit card, there’ll be no interest charged on top, as the cash is taken straight from your current account.
Taking the non-sterling transaction fee and the ATM charge into account, only three accounts do not charge extra for cash machine withdrawals in Europe (Cumberland, Metro and Nationwide FlexPlus), and of these only Metro Bank charges for withdrawals in the rest of the world.
Pre-paid cards provide another way to spend abroad. These are loaded with money in advance, and you can only ever spend the balance on the card, so there’s no risk of running up debt whilst away. You can continue to add to the balance as you go, and other people can top it up for you, providing extra security and comfort. There are 123 pre-paid cards currently available, but it is definitely advisable to look into the terms and conditions of each, as you can face extra fees.
- Transactions charges - 105 (85%) cards do not charge for transactions made in the currency of the card. 30 (24%) cards do not charge for transactions made in a currency other than that of the card.
Otherwise fees can range from 1.4% to 3% for each time the card is used for currency of the card, up to 5.75% for other currency.
Some cards may also charge a flat fee for each transaction. Flat fees range between £0.25p and £1.50.
- Cash Machine withdrawal fee - 27 (22%) cards do not charge for withdrawing cash from an ATM in the currency of the card.
10 (8%) cards do not charge for withdrawing cash from an ATM in a currency other than that of the card.
Otherwise fees can range from 1.5% to 3% for each time the card is used at an ATM, or up to 5.75% for other currency than the card.
Flat fees range between £0.50p and £3.
Check and be careful of any Application fees, Top-up fees, Transaction fees, Inactivity fees and Monthly fees.Also keep in mind that many cards cannot be used for car hire, and customers might also have difficulties at petrol stations, where payments often cannot be pre-authorised.
Prepaid Travel Cards often have a choice of currencies you can put on the card. If possible try to use the currency of the country you are in when using cash machines and making purchases.
Is cash king?
The other option is taking cash. This is arguably the most convenient way to pay as it is easy to purchase most major foreign currencies within the UK, and you’ll know exactly how much you are spending. However, it definitely pays to get this in advance of travelling to avoid being stung by sky high airport exchange rates. There is always a risk when carrying large sums of money, so you should always have a travel insurance policy which covers lost or stolen cash too.
Traveller’s cheques are a safer way to carry larger sums of money around, and 61% (54) of the 88 current accounts currently offer commission free travellers’ cheques. However, in some places they are seen as outdated and it may be difficult to cash them in – especially in remote locations or at weekends. Therefore it’s necessary to do research in advance of travelling to ensure you’ll be able to use them, or have a backup method of spending in case you run into difficulty.
Brian Brown, Head of Insight at Defaqto, comments: “For anyone going away this summer, it’s well worth looking into your holiday money in advance to escape unnecessary fees, charges and poor exchange rates. There are a number of options available – from credit, debit and pre-paid cards, to cash and travellers’ cheques – and each has several benefits. However, there are also a number of factors to be wary of, so take time to weigh up the pros and cons to avoid overspending overseas.”
Defaqto Star Ratings help consumers make better informed financial decisions, by showing the quality and comprehensiveness of features and benefits of products. Defaqto’s experts independently research, collect and assess nearly 41,000 financial products, and rate them on a scale of 1 to 5 based on the quality and comprehensiveness of the features and benefits they provide. This means people can see at a glance how products compare.
Notes to editors
1 - All data taken from the Defaqto Matrix database. Product details correct as of 14.07.2017.
Defaqto: Jo Hudson, PR & Communications Manager, 07387 091 006
Number of credit cards which charge for their transactions inside and outside of Europe:
Number of debit cards which have a foreign exchange fee on transactions inside and outside of Europe:
As shown above 12 (14%) accounts do not charge for any non-sterling transactions in Europe, and just one of these accounts charges in the rest of the world (Metro Bank).
Percentage of debit cards with ATM costs inside and outside of Europe:
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Our independent fund and product information helps banks, insurers and fund managers with designing and promoting their propositions. We analyse around 41,000 financial products in the UK. These products change on a daily basis, and our customers need help with keeping track of this.
We have been doing this for over 20 years, and we have over 60 analysts spending 400 hours a day monitoring the market. They ensure that the information we provide is accurate and up to date. Our experts have done all the hard work so that financial institutions and consumers can make better informed decisions.
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If a current account is hacked and fraudsters start making purchases and cash withdrawals using the card and pin – intercepted by the crooks – most customers would expect the bank to repay the losses without question.
If a wallet is stolen from a locked car, with the pin heavily disguised, most people would still expect the bank to refund any money withdrawn.
But, despite clear rules that state banks can only refuse to refund a customer if he or she has acted "fraudulently" or had been "grossly negligent", there is growing evidence that the banks are taking a tougher line and refusing a refund – in some cases for the sole reason the thief used the card with a merchant the account holder had also done business with.
Even in the face of overwhelming evidence that the account holder was miles away at the time, and it could not have been them, some banks have been insisting their customer is liable.
If you are one of millions of people who has written down your pin – even as part of heavily disguised code that only you can decipher – the implications are worrying.
This week Guardian Money was contacted by a Sheffield couple who lost £1,260 after their wallet, plus a mobile phone and a satnav, were stolen from the glove compartment of their locked car. Within a few hours the thief had taken cash out of two HSBC accounts – one personal and one business.
The couple had done what many others do – written their pin in a heavily disguised form on a business card. They say the information would only have meant anything to them, and that they are not even sure the business card was in the wallet.
But HSBC has refused to refund the money, arguing that the couple's real bank cards (not a clone) and the correct pins were used and that, therefore, they have breached the bank's terms and conditions and were grossly negligent. Their case is complicated by the fact that a year earlier they had asked the bank to raise their £300 daily ATM cash limit to allow them to take out a higher amount – but just for 45 minutes. The bank has admitted that it failed to return the limit after this time, which enabled the thieves to take more than they would have done normally.
The pair, who have banked with HSBC for five years, say local police have not been interested in their case, indicating this is partly because they expect the bank to reimburse them.
Money has also become aware of other cases in which a bank is persuaded by fraudsters to send out a replacement card and pin reminder, which are then intercepted and used by the thieves. Again, the banks refuse to pick up the losses.
Late last year we were contacted by a Mr Singh, who has been in dispute with Nationwide since 2010. Back then he was working on assignment in Bangalore. He was sent a replacement debit card and a pin reminder to his UK home which is occupied by other members of his immediate family.
However, he says, neither arrived. Instead, someone else started using the card in Mumbai, running up a bill of £3,000. He immediately reported the loss and cancelled the card.
Nationwide initially indicated that he would receive a full refund. But a week later it turned down his claim and accused him of being involved in the fraud. It suggested he knew the person who had used the card, a claim he emphatically denied.
After a year and a half investigation, the Financial Ombudsman sided with Nationwide, at which point he approached us looking for some advice. We put him in touch with a specialist card fraud investigator, Richard Emery, who runs 4Keys International. Within four weeks, he had persuaded Nationwide that Mr Singh had a legitimate claim. The building society did not return his money but, instead, paid him his losses as a "gesture of goodwill".
Had Emery not intervened, he would have faced a lengthy legal court case, and the possibility that he could be accused of fraud in court.
But the reality is that banks cannot refuse a refund because, on the balance of probabilities, it feels there may have been fraud. It has to prove negligence or fraud, yet in many cases they are now turning down refunds where they have suspicion only.
It is not just Money that has noticed this trend. Last week, BBC's Watchdog programme featured several similar cases. One Barclays customer found his bank cards had been used by thieves to buy two car tax discs from the DVLA website for vehicles he didn't own. Barclays insisted he was liable because his hijacked card details had been used with a merchant that he had also used. When he pointed out that anyone with a car had to buy a tax disc it cut no ice, although Barclays later refunded him in full.
Another NatWest customer lost £18,000 when a fraudster rang the bank and persuaded it to change his address from a house in Slough to another in Nottingham, and asked for a new card and pin to be sent.
In his case, NatWest agreed to refund the £5,000 that had been moved out of his account electronically, but refused to hand back £13,000 in purchases and cash withdrawals. Even though he could show that he was out of the country at the time they were made NatWest argued that, because the purchases had been made by his exact card and pin, he was liable. Following the BBC's intervention it has now repaid his money in full.
Richard Emery, who appeared on Watchdog, says that where a customer disputes a transaction there is an onus on the banks to prove that the payment was authorised by them.
The Financial Services Authority's Banking Conduct of business states that a bank may only hold a customer liable … where the customer has acted fraudulently, or has "intentionally, or with gross negligence, failed to comply with his or her obligations ... to take all reasonable steps to keep its personalised security features safe."
Emery argues that it is quite possible for a customer to keep the card and pin safe, but for a fraudster to obtain them – or just the card details – through other means, which they then use to perpetrate the fraud. In such cases, the bank must repay the customer in full, he says. The Financial Ombudsman Service, where lots of these cases end up, relies on the payment services directive, which came into force in November 2009.
It says that if someone is a victim of fraud, the bank must refund them immediately – unless it has good grounds to suspect that the cardholder has been negligent or acted fraudulently.
A spokesman told Money this week that use of the correct card and pin is not "evidence of negligence in itself. We have always made it clear to financial businesses that just because a pin has been used correctly in conjunction with a card, does not, in itself, mean that the cardholder should be found responsible for the debt.
"We expect to see all the evidence from the financial business demonstrating how it has investigated the disputed transactions and reached its conclusions. We then look at all the evidence from both sides – including the consumer's recollections – when resolving the dispute."
Back in Sheffield, there is some partial good news for the couple who had their wallet stolen. HSBC says it recognises it failed to lower the ATM cash limit, so has agreed to refund half of the £1,200 the couple lost.
An HSBC spokesman says the couple admitted to writing their pins on the back of a card held in purse which, even if in a disguised form, is against the account's terms and conditions and is "considered negligent".
He says the bank had declined the rest of their claim because it was told there was no damage to the car when it was broken into. Having looked at the ATM withdrawal pattern of both cards, the bank concluded that it was highly unlikely that a thief could have been shoulder-surfed their pin.
It says there were no incorrect pin inputs, no balance inquiry, and no further attempted withdrawals after the cards were reported stolen.
The worst pin numbers to use
A study by cryptographers at Cambridge University has found that crooks have a one-in-11 chance of guessing your pin number – because so many people just use their birth date.
Researchers examined the real four-digit numbers used by millions of people to lock their phones or access specialist websites.
Patterns immediately emerged. Oddly, the digits 69 occur much more than they should at the end of a four-digit sequence, which perhaps says a lot about what's on many people's minds.
"About a quarter of people stick with their bank-assigned random pin, and over a third choose one using an old phone number, student ID or other sequence of numbers which is, at least to a guessing attack, statistically random," says Joseph Bonneau, a researcher in the university's computer security department.
But the rest are easier to guess. One in 20 people use a simple numeric pattern such as 4545. One in 10 use a pattern on the entry keypad – which suggests you'd be pretty dumb to pick 1379 or even 2580/0852 (down/up the centre of the keypad). "Unfortunately, the final group of 23% of users chose a pin representing a date, and nearly a third of these used their own birthday. This is a game-changer because over 99% of customers reported that their birth date is listed somewhere in the wallet or purse where they keep their cards. If an attacker knows the cardholder's date of birth and guesses optimally, the chances of successfully guessing jump to around 9%," says Bonneau.
He reckons banks should ban a hitlist of 100 bad pin numbers (starting with 1234) which, if eradicated, would prevent nearly all attempts at guessing.
A separate study last year by an Apple iOS developer found that the most common four-digit unlock passwords on iPhones are 1234; 0000; 2580; 1111; 5555; 5683; 0852; 2222; 1212 and 1998. 5863 is the numerical representation for the word "love".
It seems we are also a bit rubbish at picking passwords. A study last year found that the most common password is ... password, with "abc123" not far behind.