The price of easy money

Anyone who has spent precious holiday time trudging around in search of a foreign exchange bureau to cash their traveller's cheques will be familiar with the sinking feeling that comes when, bureau finally located, they find themselves in receipt of rather less cash than they had expected.

Excessive transaction rates, along with good old-fashioned convenience have, unsurprisingly, made use of credit cards when travelling overseas increasingly popular. But how many of us can say we know exactly what charges we are incurring with our flexible friends?

"There are a number of charges that customers need to take into account when using credit cards abroad," says Michelle Slade, a credit card specialist with Moneyfacts, the online publisher of financial advice whose website, moneyfacts.co.uk, offers regularly updated comparisons of the deals available through Britain's major card issuers.

"Not only are customers charged the standard purchase APR or cash per annum, but they are also charged what is known as foreign usage loading." This loading, explains Ms Slade, can bump up the price of any purchase; with a typical rate of around 2.75 per cent - a fee which applies in addition to the standard interest schedule of most cards.

By far the least prudent way of financing yourself with a credit card overseas is withdrawing cash from an overseas ATM, however small the amount. "Consumers should be aware of the cash handling fee," says Ms Slade, which in the case of some cards is charged in addition to both foreign usage loading and standard interest. Debit cards also carry their own scale of charges. "Handling fees apply both in the UK and abroad," says Ms Slade, "[and] can be as much as three per cent, with a minimum charge of £3. Taking cash out abroad on your credit card is a very expensive way of borrowing."

So holidaymakers who enjoy the convenience of credit cards may be interested to learn that the Post Office last week announced that new holders of its credit card, issued by Mastercard, will no longer be charged foreign usage loading when using their cards abroad, a deal which applies to both cash withdrawals and purchases.

The Post Office is not the first card supplier to cancel foreign loading - that was the Nationwide Building Society, which dropped the charge in 1997. What makes the Post Office move significant, however, is that it comes from Britain's leading provider of foreign currency. With more than 2,600 branches, the Post Office will this year handle around 15 million foreign exchange transactions, with a total value of £2.6bn. Including traveller's cheques, they will dispense close to 80 different currencies.

"Foreign loading isn't exactly a hidden charge but neither is it particularly transparent," says Gary Fitton, head of lending at the Post Office. "When you take a card out the interest schedule will always be set down in the terms and conditions of the card issuer but most of us don't pay all that much attention to anything but the basic interest rate.

"If they have taken heed of the charges, by the time people come round to using their cards they've forgotten about them, particularly if they're enjoying themselves abroad."

The changes to the Post Office's card will initially only apply to new customers, but Mr Fitton says the facility should be available to all cardholders within the next few months.

"One thing you have always got when using a credit card overseas is an exchange rate that compares favourably with most local foreign exchange bureaux. Without foreign usage loading that obviously makes the deal even better."

Michelle Slade concurs, adding that, as card issuers increasingly compete for business, it pays consumers to shop around.

"While Nationwide and the Post Office don't charge foreign usage loading, wherever you use your card in the world," she says, " [companies such as] Saga won't charge for using your card in the EU and will then charge one per cent for using your card anywhere else in the world."