Beware the foreign usage credit card rip-off

Consumers are unaware that the vast majority of credit card companies charge a foreign usage fee on top of the money they make from the exchange rate transaction, and LloydsTSB is about to add a further £1 per purchase to the woes of customers abroad.

A survey carried out by Moneyfacts, which monitors financial products, reveals that foreign usage loading on cards averages 2.75%. That means on spending of £1,000 on a credit card whilst abroad on holiday or business, the credit card company would charge £27.50.

If you intend to use cash regularly while abroad, it pays to withdraw one or two large amounts rather than a number of small sums as you will pay the cash withdrawal charge, usually a minimum of £2, on every transaction. Two £50 withdrawals will cost you £4 in cash withdrawal fees compared with only £2 for a £100 withdrawal.

Charges can mount up if you use your usual credit card. On a £1,000 withdrawal you are likely to be charged 2% cash withdrawal fee, plus 2.75% foreign usage charge, total charges of £47.50.

But this is not the end of the story. In addition you will be charged interest on the cash withdrawn from the date of withdrawal. On cards which charge 1% or more a month, a fairly average APR of 12%, this will work out at another £10 making total charges on a £1,000 cash transaction at an ATM of £57.50.

One way to avoid the interest charges is to overpay on your credit card the month before you go abroad by the amount you expect to withdraw in cash. The card company cannot charge you interest if you are withdrawing your own money.

And the final insult is that the credit card company will levy another undisclosed charge by creaming money off on the rate of exchange it uses which is advantageous to the card company.

Moneyfacts is not the only financial website to have spotted these rip-offs and it isn’t just credit card users who will suffer. Stuart Glendinning, director of credit cards, moneysupermarket.com, points out: ‘Lloyds TSB, for example, will start charging their current account customers £1 every time they make a purchase abroad from 20 May 2005. This is a surprising development given that they already charge a 2.75% conversion charge on all foreign currency transactions. It also looks harsh when a number of providers do not even apply the foreign currency conversion charge.’

Glendinning calculates that a Lloyds TSB customer on a two week holiday abroad, who spent a total of £1,500 with a Lloyds TSB debit card (N.B not credit card) withdrawing £500 cash on two occasions and paying for goods worth £500 with their debit card, would pay £41.25 on foreign loading fees, £9.00 on cash withdrawals and £1 on top for each purchase after 20 May.

‘One exception to this rule is Nationwide, which does not charge a foreign usage loading and the cash withdrawal charge is only 1.5%,’ explains Samantha Owens, Moneyfacts research editor.

Two other cards are worth considering. Lombard Direct M Card has no foreign usage charge and a cash withdrawal fee of 2%, while Liverpool Victoria has no foreign usage card on transactions in Europe and 1% elsewhere, with a cash withdrawal charge of 1.5%.

Glendinning points out that Nationwide also has no charges for foreign usage or cash withdrawals on its debit cards, as well as credit cards.

For more information visit www.moneyfactsco.uk and www.moneysupermarket.com.