How your flexible friend can cost you dearly

PRICEWATCH DAILY:Credit cards might seem an ideal holiday accessory, but cash is  still king, writes CONOR POPE

While times are tough for most financial-services businesses, the good times just keep on rolling for the world’s credit-card companies. Last week Visa, the market leader, announced it had made a net profit of €505m – or €3,854 a minute – between the beginning of April and the end of June.

This profit was more than 70 per cent above what market analysts had expected, but the news that our flexible friends remain one of the greatest cash cows ever invented won’t come as much of a surprise to credit-card users routinely hit with ridiculous interest rates, spurious handling charges, transaction fees, foreign-exchange fees, withdrawal charges and the interesting sounding but ill-advised dynamic currency-conversion fees.

A reader contacted Pricewatch recently after coming across this instant conversion for the first tine. On a trip to Belfast, Gerard Connaughton reasonably expected to pay in sterling but when he produced his credit card to settle his hotel bill and a separate restaurant bill, he found that he was billed in euro and charged an additional 3.5 per cent on top of his bill for the privilege.

He says he was never offered a choice of currencies for payment. “One of the establishments assured me the transaction was going through in sterling. This is the first time this has happened to me and I am very annoyed about it,” he writes.

While many people, when asked by a waiter if they would like to be charged in euro, might be tempted to say yes, this real-time currency conversion can cost substantial sums – by agreeing to pay in euro in the North you can add at least €35 to a €1,000 hotel bill – in addition to the more familiar fees that come with using a credit card outside the eurozone.

Using credit cards outside of the eurozone also gives rise to currency- conversion charges of around 2.75 per cent. The fees are set by the card-issuing banks, which are charged a fee by the credit-card companies for providing the technology. Just what that fee is, is almost impossible to say, as the credit-card companies never publicly reveal it, describing the information as commercially sensitive.

The charges don’t stop there. If you use your credit card to withdraw money from an ATM outside the eurozone, in addition to the foreign- exchange fee of up to 2.75 per cent of the amount withdrawn as well as a cash withdrawal fee of 1.5 per cent, you can also expect to be charged interest from the moment you take out your money.

Generally speaking – but not always – you can avoid the withdrawal fee by ensuring your credit-card account is in credit, so it is worth checking with your bank if such charges will apply.

Of course, the most economical approach to holiday money is probably the most old school. Work out how much you’re likely to spend before you leave and then bring that amount in cash, with a little extra for emergencies. Carrying cash works out cheaper, even allowing for the commission charges imposed by the banks if you need to convert money, and spending cold, hard cash is a great way of focusing the mind on just how much that coat or meal is actually costing you.

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