You might be tempted to think that using your debit card is the best way of getting hold of your money when you are on holiday. In your home country after all, it is generally free to withdraw your own cash (as it should be), and since virtually everything is done electronically in the finance world, is it really so difficult for the banks to give you your money for free when you’re abroad?
Apparently so – or rather, apparently it offers a sneaky way for the banks to earn extra fees.
So what do they charge?
Here you can get hit with a currency loading fee which is typically around 2.75% of the amount you take out and then perhaps a Cash Withdrawal Charge which is usually between 1.5 – 2% but often with a minimum of around £2.
This means using a standard debit card to withdraw £100 worth of Euros, would cost the customer £104.75. If he or she made the mistake of taking out a series of small amounts, say £10, the unwary tourist could be paying £2.28 each time.
Get the cash before you go – but be careful
Just because a bureau de change announces that it is “commission free”, does not necessarily mean it is the cheapest place to get cash. They might not levy a commission charge, but they could well offer extremely poor rates of exchange so that actually, you would be better off at a place that did charge the commission but offered a better exchange rate.
See MoneySavingExpert's handy online tool which shows the best rates around. A quick test showed that if one were converting a £1000 into Euros, there is nearly EUR60 difference between the best and worst rates.
Additionally, be careful about buying foreign currency on your debit card, since some banks do not consider this a UK transaction and charge an additional fee.
And finally, in this section, never get your money at the airport unless you have pre-ordered it online since you will get stung with a terrible exchange rate.
The currency loading fee is, again, around 2.75% of the amount that you spend on the card.
You could also then get nailed with a retail transaction charge which for many banks is a flat fee of around £1 – £1.50 and both of these are levied every time an item is bought.
For a long time, the Nationwide was the champion of foreign travellers, until that is, it started charging in 2009 and increased its load for both European and Worldwide transactions very recently to 2% – as well as bringing in a £1 cash withdrawal fee.
As such, the debit card of choice for the fee-free shopper on holiday has to be the Norwich & Peterborough (N&P) debit account which offers 0% foreign spend fees or a cash withdrawal fee. There is potentially a £5 a month charge for this, but it can easily be avoided by fulfilling certain non-prohibitive criteria.
If you want to go with something slightly different then prepaid cards like FairFX offer a decent alternative, though only Euro and Dollar cards are free. Currencies for more exotic destinations on the “Anywhere Card” will be charged 1.5% for every time you use it. There is a US$2 charge to withdraw money from ATMs regardless which option you choose.
Remember - new cards are always appearing, and rates on existing cards can change, so be sure to do your research before settling on a new debit card.
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