Giving your cards a break

Holidaymakers should check charges before using their debit and credit cards abroad this summer as the cost of withdrawing cash and completing card transactions can vary dramatically.

Debit cards

Because in the UK we have become accustomed to free banking, many people automatically assume that they will not be charged for using their debit cards abroad. However this is not the case and some lenders charge customers for both retail and cash transactions.

Take Alliance & Leicester for example. If you have one of its debit cards and use it to withdraw cash abroad youll be charged a 2.95% cash conversion charge and a 2% cash transaction charge with a minimum fee of £2. So for every £100 taken out on an A&L card youll be charged £4.95. If you use the A&L debit card in a shop youll be charged a retail conversion charge of 2.95% meaning a £100 purchase will cost you a total of £102.95.

Some other debit cards also add on a retail transaction charge as well as a conversion charge. For example, Halifax charges a 2.75% retail conversion charge plus a £1.50 retail transaction charge which means a £100 card purchase will cost you £4.25 in extra fees.

Cash and retail transaction charges often have a minimum amount, normally between £1.25 and £2 so those withdrawing or spending lots of small amounts will be hardest hit and it may be worth taking larger sums of cash out of the ATM.

Currently Nationwide building society is the only provider that does not make any additional charges for using your card abroad. Its FlexAccount current account does not require any minimum funding in order to take advantage of this so it may be worth opening an account just for use when you are abroad, if you don't want to switch your main current account.

Want to stay current with what's happening in banking? Learn more about your account's competitors.

Credit cards

Most credit cards charge a foreign usage charge, some as much as 3% for both purchases and cash transactions. This charge is applied each time the card is used and can soon mount up to a significant amount. If you use a Goldfish credit card abroad, for example, youll be charged a 3% foreign usage charge on every purchase meaning a £100 purchase would set you back a further £3.

Taking cash out on your credit card is never advisable, even in the UK, as not only is the interest rate much higher than on purchases but you will be charged the interest from day one. On top of this you will be charged a cash handling fee as well as the foreign usage charge if the cash is taken out abroad. Take Barclaycard's platinum card for example. It comes with a foreign loading or usage charge of 2.75% and a cash withdrawal fee of £2.50. This means withdrawing £500 in cash would set you back an extra £26.25.

If you intend to use a credit card abroad it may be worth considering taking one out just for foreign usage. Neither Abbey, the Post Office nor Nationwide charge foreign usage fees.

How flexible and how friendly is that piece of plastic in your wallet or purse? Find out with Moneyextra's credit card comparison service.

11 July 2008 © Moneyextra.com

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