Dodge non-sterling transaction fees on foreign websites
By Michael Lloyd
Seasoned travellers have long known that using cards that levy fees on non-sterling transactions can be a costly business when purchasing from another country. However, many consumers fail to realise they will also accrue these charges when buying goods or services from websites that trade in foreign currencies -- even though they may be physically located in the UK.
There are ways to get around, or at least lower, the costs of non-sterling transactions. Familiarise yourself with your credit card's policies to make the best choices while shopping online.
cost of a non-sterling transaction
Non-sterling transaction fees are typically made up of two parts: your payment network (that is, Visa, MasterCard, etc. ) will take a commission for handling your purchase, and your card issuer will add its own fee on top of this. These fees may be called foreign exchange fees or foreign transaction fees, but generally, card issuers will refer to them as non-sterling transaction fees.
Non-sterling transaction fees can inflate
the price of a transaction by more than 3%. So, if you spot a deal on a foreign
website, consider if it's really a deal once the fee comes into effect. Throw
shipping into the mix -- the price of which will also be affected by the fee --
and you might find you're better
off buying from a British company, even if the list price is more expensive.
"Cards will recognise non-sterling transactions whether they are online or offline," MasterCard spokesman Adam Keal said in response to emailed questions. "So as a consumer, if you are buying something online in any other currency than sterling, you need to be aware of the foreign exchange costs that your card issuer may levy."
You won't see foreign currency transaction fees added to your shopping basket when checking out of non-UK websites, so the shock will only come when your credit card or bank statement arrives.
If you pay by debit card, you could see an additional charge of up to £1.50 added to each foreign currency transaction as a purchase fee.
Dynamic Currency Conversion
Some merchants offer a service called Dynamic Currency Conversion. It allows you to either pay in the local currency -- which will debit your account using the exchange rate offered by your issuer -- or to have the transaction converted into sterling at the time of payment.
If you have this choice, choose the currency of the merchant, not sterling. Paying in sterling is typically more expensive because the exchange rate used by the retailer is likely not as competitive as the rate offered by your credit card company.
"The point is, it's not always cheaper to pay in sterling," Keal said.
While you won't be able to avoid your payment network's fee, it's usually easy to get a credit card that doesn't charge a foreign transaction fee. For instance, Halifax's Clarity Card and MBNA's Everyday Plus American Express Credit Card offer the option of making purchases in foreign currencies without having to pay for the pleasure. Or, if your credit score isn't up to scratch, take a look at the Aqua Reward Card, or apply for a prepaid travel card, which can be loaded in foreign currencies.
Once the non-sterling transaction fee is out of the picture, your payment network will offer you "perfect" exchange rates, which beat those offered by your bank, post office or bureau de change. These rates are calculated on a daily basis using multiple market sources. Typically, MasterCard's rates are better than Visa's.
However, look for other charges that may cancel out the lack of foreign transaction fee, such as annual fees or high interest rates.
Updated: 4 November 2016
- Online financial scams you should know about – Online fraud is a huge issue, but with some preparation, you can avoid becoming a victim. Here's what you can do ...
- What documents do you need to keep, and what can you chuck? – You want to declutter, but you don't want to throw away too much. What do you need to keep, and what can go in the bin? ...
- How your debt, mental health issues are related – If you're struggling with debt and mental health problems, you'll find it's better to admit the problem, rather than try to hide it ...