April 21 2014 Latest news:

Going on holiday can be an expensive business at the best of times, so it doesn’t hurt to find ways to save a bit of money when you can.

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Paying by plastic is the preferred option for many travellers but the cost of doing this can vary substantially depending on what cards you have and how you use them.

Should you use your credit card or your debit card?

Should you make a large cash withdrawal or several smaller ones?

And should you pay that bill in sterling or in local currency if you’re given the choice?

Here we look at some of the issues to bear in mind if you want to use plastic abroad.

DEBIT CARDS

It costs nothing to use a debit card in the UK, but most cards charge you fees if you use them abroad, although there are a few honourable exceptions to this rule.

Debit cards usually hit you with overseas loading fees of between 2.75pc and 2.99pc for all transactions, plus further fees if you use them to make withdrawals. That means withdrawing £100 worth of euros from an ATM of could easily cost you an extra £5 or so in charges.

Santander — via its Zero account — is among the few current account providers that offers a card with no charges for using it abroad.

Norwich and Peterborough Building Society is another one, but don’t think you can get away with opening an N&P account simply to benefit from this deal.

Michelle Slade, an analyst at Moneyfacts, said: “There is a £5 monthly fee on the N&P current account for customers who don’t fund it with £500 a month – this is to deter customers from using it just for foreign usage rather than as their main account.”

Other debit-card customers need to be aware they are likely to be hit
by fees whenever they use their plastic.

Andrew Hagger, of Moneynet, said: “It is better that you are aware of these charges before you jet off rather than get a nasty shock when you get home.

“At least if you understand the overseas charges, you can adjust your spending pattern accordingly. For example, you don’t want to be making cash withdrawals of £10 or £20 if you’re going to be hit with charges of £1.50-plus each time.”

CREDIT CARDS

As a rule of thumb, you should try to avoid using your credit card to withdraw cash – either at home or abroad – unless you want to be stung by charges and high interest rates.

But if you do withdraw cash on a credit card while you’re on holiday, some are better than others.

The Santander Zero, Halifax Clarity and Sainsbury’s Gold cards don’t charge fees for overseas ATM withdrawals. The Santander and Halifax cards will charge you interest from the date of the transactions, but the Sainsbury’s option won’t charge you any interest as long as you make your card repayment in full and on time.

(The Sainsbury’s Gold card costs £5 a month, although it also offers family worldwide multi-trip travel insurance.)

As far as purchases are concerned, there are no fees for using Halifax Clarity, Santander Zero or
Sainsbury’s Gold cards anywhere in the world, or for using Post Office or Saga cards in Europe.

DYNAMIC CURRENCY CONVERSION

Whether you use a credit card or a debit card, you need to be aware of an increasingly common practice that offers you the chance to pay in sterling rather than in local currency.

This is called dynamic currency conversion, and your initial thought might be to take up that offer.

But you would be well advised not to do so. Don’t assume that paying in sterling means you avoid currency conversion charges – in fact, the opposite is true. What happens is that the bill is presented to you in sterling only after the retailer has used its own conversion rate – and that rate is almost certainly going to be higher than the rate your card provider would use.

“Whilst it sounds a good idea in that you know how much you’ll be charged, the problem is that it gives the retailer the opportunity to use an uncompetitive exchange rate which could see you paying over the odds by as much as 3pc or 4pc,” said Mr Hagger.

“Even though many card issuers will charge you a 2.75pc loading fee, this is often a better option than being stung by the poor rate used in a dynamic currency conversion transaction.

“Basically, if you have a card that doesn’t charge for overseas transactions, you won’t have to worry as long as you always opt to be charged in the local currency.”

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