Despite record low interest rates, the cost of withdrawing cash on credit cards is £21 million more today than in 2010
- Plastic bill: 60% of consumers plan to holiday overseas this year spending a total of £9 billion on debit and credit cards. 1.6 million consumers will place all of their holiday spending on a credit card
- Costa Del Credit: Fun in the sun could be costly as travellers plan to spend £4.3 billion on credit cards overseas incurring fees of £192 million. 64% (£117 million) of which is the total cost of cash withdrawals
- Debit disaster: 27% will opt to use a debit card whilst abroad, incurring a slightly higher bill for fees and charges of £195 million. Just making payments and purchases alone will cost holiday makers £108 million
- Airport panic: a not so organised 12% will buy costly currency at the airport securing an exchange rate which can be 8% lower than the best online rate (€1.09 vs. €1.18) plus fees of up to £3.99
- Sea of confusion: When making a £250 payment for a hotel room, paying with currency purchased at the airport could cost travellers 12% on top of the original price – four times more than using a credit or debit card
With 30 million consumers planning to visit faraway shores this year, new research released today from credit comparison website Totallymoney.com, reveals that these holidaymakers could be stung with an unnecessary £387 million bill for fees and charges on £9 billion of overseas plastic spending if they pack the wrong cards. These charges will be made up of foreign exchange loading fees, debit card transaction fees and cash withdrawal fees on both credit and debit cards. When trying to identify the cheapest way to pay, our research shows that if consumers pay for a £250 hotel room with currency purchased at the airport it will cost them a total of £280.74, compared to a total of £256.68 if they paid with the average credit card. The best credit cards don’t levy any charges so the £250 hotel room should only cost £250. Choosing the wrong form of payment whilst abroad can inflate the original price by up to 12%.
Overseas fees and charges on plastic:
- Exchange rate loading fees are added to almost all plastic transactions at an average of 2.67% for credit and 2.2% for debit cards.
- Debit card purchase transaction fees are £1.08 on average, applied to every transaction.
- Cash withdrawal fees are applied to every transaction, £1.50 on debit cards and £3.35 on credit cards on average with unavoidable interest on the withdrawn amount on top, even if the card’s repaid in full.
Costa Del Credit – cash withdrawal rip-off
When it comes to withdrawing cash on a credit card overseas this is a really expensive way to pay. Our research shows that the average withdrawal is around £106 but consumers will have pay an additional £8.20 for every transaction which is made up of; foreign exchange loading charges, cash withdrawal fees and an average inflated interest rate of 24.5% from the moment the cash is withdrawn. Travellers expect to withdraw almost £1.5 billion on credit cards whilst on holiday as they make 14.2 million ATM transactions racking up total charges of £117 million. Consumer understanding of these charges is low, one in four (25%) are totally oblivious to the fact it costs more than a debit card withdrawal and almost a third (31%) don’t know that it costs more than a standard credit card purchase.
Is debit a disaster?
Debit cards are a popular choice for one in four (27%) for overseas spending. Whilst not cheap, they offer better value than credit cards when it comes to cash withdrawals as there’s no interest racking up from the point of withdrawal. However, consumers should expect to rack up a total bill of £87 million as they are hit with an average foreign exchange loading charge of 2.67% for every transaction alongside an average cash withdrawal fee of £2.20. Travellers withdraw an average of £117 on debit cards overseas which costs around £5.72 in fees and charges, 30% less than the fees incurred on a credit card (£8.20). For payments and purchases our research shows that people will spend just under £100 on each transaction incurring total costs of £3.70.
13% of consumers will choose pre-paid cards for holiday spending which allows consumers to pre-load money from a bank account onto a card fixed at that day’s exchange rate. However, people should look beyond the exchange rate as many of these cards carry fees and charges for start-up, overseas ATM withdrawals and in-activity fees if you leave a posts holiday balance on them.
Table one: Cheapest way to pay for a €302 hotel room
|Total cost of a €302 (£250 at today’s exchange rate) hotel room including fees and charges based on the following payment methods:||Total cost in £’s||% added to the cost with the addition of fees and charges and interest|
|Currency purchased at the airport*||£280.74||12.30%|
|Cash withdrawn on a credit card||£264.90||5.96%|
|With a debit card purchase||£257.76||3.10%|
|With a credit card purchase||£256.68||2.67%|
|Currency purchased at a competitive rate*||£255.38||2.15%|
|Prepaid card – Fair FX Euro Card Mastercard||£255.00||2.00%|
|Halifax Clarity Card||£250.00||0.00%|
Source, TotallyMoney.com, correct as at 31st March 2014. *The Post Office
Right way to pay: Cost of paying for a £250 hotel room
Based on our research, the cheapest way to pay for a £250 hotel room whilst overseas is by making a direct payment with the Halifax Clarity card or another card with no foreign exchange loading. It’s a free transaction compared to a cost of £5.38 on the average credit card. Top of the ‘expensive way to pay’ list is the use of currency purchased at the airport. In effect, this will add around 12% to the original price of the hotel room which means consumers will pay £30.74 extra when the exchange rate and the fees and charges are taken into account. Next worst is the use of cash withdrawn on a credit card which will add 6% or £14.90 to the cost of the hotel room.
Will Becker, CEO and co-founder of TotallyMoney.com comments:“When travellers plan their next overseas adventure, thinking about exchange rates and cash withdrawals fees is probably pretty low on the list of things to get excited about. However, this can be an expensive oversight without a little forward planning as these relatively small fees and charges can really add up. Consumers using a credit card for overseas cash withdrawals are hit particularly hard with the average transaction costing more than £8. Over the course of a two week family holiday this could mount up to almost £100.
“People will always need some cash while they holiday so using a debit card to make withdraws could be a cheaper choice. Alternatively, you can get some great deals if you buy currency before you leave the UK but you should never pay for this with your credit card as it’s treated as a cash advance. This means you’ll pay interest from the day you buy the cash and an inflated interest rate of around 25%. But the number one method to avoid is buying currency at the airport as our research shows the exchange rate can be 8% lower than the best online rate.
“Overall, consumers spend a great deal of time planning holidays and shopping around for the best deals. However, using the most expensive payment methods when arrive at your destination can cost around 10% more for every purchase, negating the savings made by bagging a bargain flight or hotel deal.”
If you do have to use your credit card to make cash withdrawals or payments abroad, the Halifax Clarity Card is one of the best deals around. The card provides fee free cash withdrawals and a competitive APR of just 12.9% on purchases and cash advances, less than half the industry average. This applies to both UK and overseas withdrawals.
TotallyMoney.com, launched in 2007, is the UK’s leading credit-focussed comparison website which sets out to make it simpler for consumers to compare credit cards, loans and mortgages. With a revolutionary approach to credit comparison, TotallyMoney.com uses exceptional comparison tools to empower people to make better financial choices.
Notes to Editors:
1. Research carried out with OnePoll across 1,000 credit card holders and 1,000 debit card holders in March 2014. Research shows that:
- 57.95% of credit and debit card holders claim they will travel abroad this year totalling 29,079,760
- Total spend on plastic this summer = £9,125,441,452 with fees totalling £366,614,807
- £202,855,133 fees will be incurred by consumers using credit cards and 163,759,674 on debit cards.
2. Credit card spending and charges – total spend = 4,309,054,358 with total charges £191,657,943
Total amount of cash withdrawn on credit cards = £1,502,452,214. £116,721,666 in total fees is calculated as follows:
- Average credit card cash machine withdrawal = £105.60
- Total number of credit card cash machine withdrawals = 14,228,018
- The average cost per cash withdrawal = £8.20 (This is made up of the average international load fee 2.67%, average cash advance charge 3.29% and the average cash advance AER over 30 days).
- 14,228,018 x £8.20 = £116,721,666 in total fees and charges for credit card cash withdrawals.
Total spend on credit card purchases = £2,806,602,143. £74,936,277 is calculated as follows:
- Average credit card purchase/payment = £67.61
- Total number of credit card purchase/payment = 41,509,160
- The average cost per credit card purchase/payment = £1.81 (This is made up of the average international load fee 2.67%).
- 41,509,160 x £1.81 = £74,936,277 in total fees and charges for credit card purchase/payments.
3. Debit card spending and charges
The total amount of money withdrawn on debit cards = £1,795,505,546. £87,411,120 in total fees is calculated as follows:
- The average debit card cash withdrawal = £117.39
- Total number of debit card cash withdrawals = 15,295,642
- The average cost per cash withdrawal = £5.72 (this is made up the average cash advance charge £1.50 or 2.2% + the average international loading fee 2.67%)
- £5.72 x 15,295,642 = £87,411,120.
The total spend on debit card payments/purchases = £2,861,532,684. £107,848,827 in total fees is calculated as follows:
- The average debit card payment/purchase = £98.28
- The total number of payments/purchases on debit cards = 29,116,578
- The average cost per payment/purchase on debit cards = £3.70
- £3.70 x 29,116,578 = £107,848,827
4. Gatwick terminal currency exchange, correct at 11.34 as at 31/3/14 @ €1.08 vs. average online exchange rate of €1.18. £399 fee applies to currency requests for less than £300
5. Cheapest way to pay €302 for a hotel room. Exchange rate, correct as at 27/3/14 1.20868 Euro to the GBP.
6. All fees are charges are taken from TotallyMoney.com’s industry analysis based on Defaqto data, February 2014.