Use your card abroad -- without foreign transaction fees

By Marianne Curphey

Going abroad can mean a lot of extra expenses, including fees on credit card purchases. When you use your UK credit card abroad, your transaction will likely come with a fee of up to 2.99% of the value of the transaction. This fee is often called a foreign transaction fee, a foreign exchange fee or a foreign currency fee (not to be confused with currency conversion, which is the rate of exchange in place when you make the transaction).

"It is so convenient to use your card abroad that debit card and credit users don't always think to check before they make purchases or withdraw cash," says Andrew Hagger, director of MoneyComms, a public relations consultancy and research firm for financial services providers. "It's only when they return to the UK and see the costs in black and white on their bank statement that they realise the extent of the charges."credit-cards-abroad

The foreign transaction fee applies to purchases, but be aware that it also applies to non-sterling credit card cash withdrawals -- on top of a non-sterling ATM fee, any fees the ATM owner may impose, a cash advance fee and any interest you'll pay for taking out a cash advance. Of course, cash advances are almost as costly in the country as out, so as a rule of thumb, avoid taking them out. 

Finding a card with no foreign transaction fees
If you take a once-in-a-lifetime trip abroad, you might just need to calculate the extra fees into your travel budget and be done with it. However, if you travel often, it's worth looking into a card that doesn't charge foreign transaction fees. Such cards include:

Halifax Clarity card: This card is free to use worldwide for both purchases and ATM withdrawals (though you'll still have to pay any fees imposed by the ATM provider).

Saga Platinum Visa: This card charges no foreign currency fees, plus it offers 0% APR on purchases and balance transfers in the first nine months. However, this card is only available to those older than 50.

Post Office Platinum MasterCard: This card charges no foreign transaction fees, plus it offers 0% interest on purchases for three months.

It is best to apply for a new card well in advance of your holiday, to allow time for your application to go through, then to get your card in the post and make a small purchase to be sure it's activated.

If you opt to use debit instead of credit abroad, you can still avoid foreign transaction fees. Norwich & Peterborough Building Society's Gold Account offers a debit card with no fees for use abroad, and Metro Bank's current account debit card is fee-free in Europe.

When searching for a card with no foreign transaction fees, be sure to read all the terms carefully. Sometimes a credit card provider will offer free or low-cost foreign transaction fees on just one card in its range of cards, Hagger said. For instance, he said, while the Halifax Clarity card is free to use out of the country, none of the other Halifax cards offer that perk.

Travelex Supercard may give you more flexibility
The Travelex Supercard, which debuted in mid-2016, works with a free app available for both Apple and Android users. You can add any of your existing debit or credit cards, MasterCard or Visa, to the app and you can then use the Supercard anywhere MasterCard is accepted, fee-free. Transactions outside of the UK are processed as domestic transactions, rather than foreign transactions. Transactions in currencies other than British pounds will be converted using the applicable MasterCard wholesale exchange rate.

You'll still earn any rewards associated with the linked card when you use your Supercard at the point of sale. You can manage up to five linked cards through the app. The Supercard is a physical card that is sent to your home address, so you don't have to worry about whether the country you're visiting accepts mobile payments.

However, there are some drawbacks. The biggest: since you are paying via a third party, you won't enjoy the Section 75 consumer protection rights when you make large purchases as you would with your regular card.

The fees are also the opposite of usual UK credit cards; while you won't be charged for spending outside of the UK, you will be charged when you spend in the UK. You'll pay 1% of the transaction value plus £1 per transaction or ATM withdrawal.

To receive MasterCard's wholesale exchange rate - usually the most favourable rate you can get -- you must select to pay in the local currency of the country you're in. Cash withdrawals come with a 2.99% charge, however, there are no cash advance fees for using a credit card linked to your Supercard.

Additionally, there are some restrictions on where you can use the Supercard -- you won't be able to use it at petrol pumps, vending machines or for in-flight purchases.

See related: Smart ways to spend on holiday; Fraud more likely to occur with travel purchases; Using plastic to get cash abroad

Updated: 22 June 2016