As banks make it even more expensive to use your cards abroad, here's how you can avoid being taken for a ride on your travels

High street banks have been accused of fleecing loyal customers by pushing up the cost of using cards abroad just as millions of families prepare to go on their holidays.

As much as £6 in every £100 spent on credit cards overseas, and £5 on debit cards, goes to banks in charges. Industry analysts claim the cost of these hidden “foreign loading fees” was £726m in 2006.

Last week Lloyds TSB hiked the loading fee it charges on overseas debit-card transactions from 2.75 per cent to 2.99 per cent. Once a second fee of £2 is added, it will cost you £4.99 to take £100 out of a cash machine abroad.

Halifax is increasing the charge on its credit card from 2.75 per cent to 2.95 per cent. For every £100 spent in a shop or restaurant the bank will take £2.95 from next month.

Other card providers such as NatWest and Morgan Stanley have also pushed up charges. Holidaymakers are being warned that more will follow as the banks, under attack for penalty charges at home, manipulate overseas fees to boost profits.

Mike Naylor at Uswitch, a comparison site, said: “This is a cynical move to fleece loyal customers. Introducing new fees or increasing charges is just plain greedy and an easy way to boost profits.”

It’s not just banks that are trying to squeeze more money out of holidaymakers. Mobile-phone firms, shopkeepers and carhire companies also see them as easy pickings. We highlight some of the scams you should beware of this summer.

Shops’ secret conversion scam

Retailers, restaurants and hotels have found a way to exploit holidaymakers using a practice known as dynamic currency conversion.

Guidelines state that a UK cardholder should have the option of paying a bill in either the local currency or in sterling. Prior to the transaction, a shop or restaurant should verbally inform the cardholder of the payment choice – but many do not.

They often convert your bill automatically into sterling, at their own uncompetitive conversion rate plus commission of up to 4%.

Say a family paid €100 for a meal in Spain and the restaurant converted that into sterling. They could be charged £75, according to Nationwide. If, however, the family paid in the local currency with a Nationwide card and it did the conversion, the meal would cost them only £67.25. Always ask to be charged in the local currency.

The plane ticket lottery

Air travellers can pay hundreds of pounds more than other passengers on the same flight, for seats booked at the same time, depending on whether they bought their ticket through the airline or a partner.

In one example, a United Airlines customer on a return trip from Manchester to Chicago could have saved nearly £600 by buying a ticket through British carrier BMI, a United Airlines partner.

The difference arises due to a practice called codesharing, where an airline sells tickets on a flight operated by another. Most airlines are part of a wider network and can offer their partners seats on their flights, which they can then sell at their own prices.

The best way to ensure you are not paying over the odds is to use a website such as skyscanner.com, flightchecker.co.uk or kayak.co.uk. These send your trip details to scores of airlines and flight-broker websites for a range of quotes, listing the cheapest first.

The car hire con

Most rental contracts include “free” insurance, but the damage or theft excess can run into thousands. Most people realise this only when they collect the car, and have already been persuaded to buy costly top-up cover.

However, there are ways to reduce the cost. Insurance4carhire.com will arrange insurance against excess fees. A year’s European cover costs £51.45 and protects you against all excess charges and damage to tyres, windows and undercarriage, which are excluded by most insurers. This would cost £119.98 through Hertz if you went away for a week to Nice – a saving of over £300, assuming you take three holidays a year.

Another option is to book your car through a broker, such as Holiday Autos or Car Rentals. Both offer damage-excess waiver insurance on their bookings for £2.50 a day.

Don’t leave your car hire until you get to the airport, where it is usually more expensive. The easiest way to get the best deal is to book in advance using price-comparison sites such as Travelsupermarket.com.

The high cost of calling home

The European Commission’s clampdown on rip-off overseas call charges, which will slash costs by up to 70% to just 33p a minute, will not come in until after the holidays, but there are other ways to save money.

Firms such as Truphone and US giant Bel-kin offer mobiles that send and receive calls over the internet using a wireless connection (wi-fi), bypassing traditional mobile networks.

With Truphone, which works on most Nokia handsets, calls to other users are free. Landline calls also cost nothing until the end of the year, while calls to other mobiles cost 15p a minute. This compares with up to 70p to phone the UK from Spain using Orange.

Alternatively, you could take your laptop abroad with you and make calls over Skype.

If you would rather stick with your traditional mobile, it is cheaper to use local Sim cards from firms such as Go-Sim and Story Telecom. Put the new Sim card into your phone and you will get a temporary number. Story Telecom costs £25 including £25 of free calls, after which they cost 21p a minute.

Search on moneysupermarket.com for the best overseas Sims.

The credit card trick

Credit cards are the sensible choice for big purchases overseas, as they offer protection. If a purchase of £100 or more was damaged or faulty when you bought it, you could recover the cost from your card provider.

However, it doesn’t make sense to use credit cards to withdraw money from an ATM because there is no interest-free period. So while you normally get an interest-free period of about 56 days on credit-card purchases, overseas cash withdrawals start accruing interest immediately. Fees are also hefty. Most companies add a foreign-usage loading, typically 2.75% as well as an ATM fee, usually 2.5%, so £100 cash could cost as much as £6.

Also watch out when you use your card in America. Fraudsters, thwarted by chip and pin in Britain, are targeting countries such as the US that don’t have the new technology.

Best ways to get your travel cash

MILLIONS of Britons who are heading abroad will be stung by hidden charges on their holiday spending – but you don’t have to be fleeced. We explain where to find the best deal on your travel money.

Should I change my cash before I leave home?

Unless you have a debit card from Nationwide, which doesn’t levy an extra charge for using cards abroad, the cheapest way is usually to order your cash in the UK – if you buy online.

Competition is fierce and numerous providers, including the Post Office, Thomas Cook and many high-street banks, offer commission-free currency. But many take a greater margin on the exchange rate to recoup the costs, so it is still important to search out the best deal.

Travelex consistently comes up with the best rates online, and offers a price promise so if you find a better rate elsewhere it will refund the difference. Last week you would have got €1.44 to the pound commission-free. This would have cost someone buying €1,000 a total of £693.43.

If you use this service, the money is ordered over the internet and then collected at a Travelex bureau. It has desks at all the big British airports, seaports and train stations.

Some foreign-exchange providers will deliver currency to your home, though you may be charged a fee. Marks & Spencer, for example, charges £5 if the value of the order is less than £500. HSBC levies £3.95 for orders below £250.

Most online travel services require at least 24 hours’ notice for delivery.

M&S is a good choice if you leave it too late or don’t have online access. Unlike most providers, it guarantees its branch exchange rate is the same as its online rate. It does not levy commission and charged £698.81 for €1,000 on Friday.

I don’t want to carry notes round. What is the cheapest card?

Most banks and building societies levy a conversion charge – sometimes called a currency fee or loading charge – on all debit-card transactions overseas, typically 2.75%. Many companies impose an additional charge on foreign cash-machine withdrawals of 1.5%. There may also be a transaction fee of up to £1.50 on purchases.

Only Nationwide does not impose these fees, making it the cheapest debit-card option. The cost of withdrawing €1,000 using a Nationwide debit card last Tuesday would have been £672.50 – nearly £21 cheaper than Travelex’s market-leading online rate.

Nationwide and the Post Office are the best for credit-card purchases, but don’t use your credit card to withdraw cash, because even these cards charge and there is no interest-free period.

What about prepaid cards?

These are aimed at holidaymakers reluctant to use their bank card to withdraw cash or make payments abroad. Many firms, from Lastminute.com to the Post Office, offer these cards, but the charges are often high.

The cheapest is the Caxton FX Euro Card. Users pay €2 or £1.35 to make ATM cash withdrawals. But if you apply online there are no other fees. Even purchases in shops incur no charge. The cost of a €1,000 purchase would be £683.99.

(Published by Times Online, August 7, 2007)