A few years back, I experienced a terms and conditions change on my bank card and had to spend £600 (almost $800) on international bank fees over 6 months of travelling.
Foreign travel is a very lucrative business for banks and other financial service providers. Even if you want to access your own money via your own bank’s ATM in another country, it can cost you big time. There are 7 different types of bank fees you could be charged.
And guess what? You don’t have to pay most of these bank fees whilst travelling. So, why on earth would you?
Ultimate Travel Money Guide
We’ve compiled a whole load of comprehensive blogs focusing on travel money. What are the best travel debit and credit cards? How do I avoid money changer scams? What are these international bank fees I keep getting on my card whilst travelling? Our in house (or hostel as we are travelling) money guy James is here to offer tips and guidance on managing your money whilst travelling. This blog is all about those weird international bank fees.
Fees, Fees, Fees
And when I say fees, fees, fees it is because there are 7 different types of fees you can end up paying to access your own money abroad. Sometimes you can pay all of them in one transaction.
Your Bank Is Probably Ripping You Off
In the table below I’ve highlighted what fees the main traditional UK banking providers charge for you to use your money abroad. This is for their standard accounts.
Debit Card Bank Fees
Credit Card Bank Fees
As a full disclaimer I have current accounts with HSBC and Metro and credit cards with Barclaycard and Halifax.
Note: Banks tend to offer many different accounts. Some offer low or no fees for certain customers. These accounts tend to come at an annual cost, only be for business customers, or only be available to customers receiving a certain amount into their accounts each month. It’s worth checking your own accounts to see what you are entitled to (some even offer a limited form of travel insurance).
But It’s Only A Couple Of Quid
Yes, it normally is only a couple of quid or less. Every time you use your card whilst travelling. It can add up to quite a lot.
As I said above, 6 months into my travels a few years back, my Metro Bank card had its terms changed. This meant I had to pay fees on all non-EU transactions which were previously free. My only backup card was HSBC which also charged fees. I couldn’t take out fee-free cash on any of my credit cards.
I paid 6 months’ worth of bank fees which totalled about £600 (almost $800). If that had been over a whole year, that’s £1200. £1200 = a couple of months worth of travel in South East Asia. What would you rather do? Travel more, or instead throw this money at your bank?
I know what I’d rather do.
You don’t have to pay these bank fees. So why on earth would you?
Let’s run through what these different fees are.
Bank Fee Number 1: Interbank Rate
Banks can exchange money with each other at the interbank rate. Halfway between the prices banks buy (‘bid’) and sell (‘ask’) at is the mid-market rate.
This is what you will see when you Google the exchange rate on websites such as xe.com.
But this mid-market rate is only a theoretical price.
When you buy a currency you will pay the interbank bid rate which has an implicit ‘fee’ compared the mid-market rate.
But what does this mean?
This can be confusing. It may seem like you are getting a worse rate compared to the one you found on the internet, especially for less traded currencies.
For example Kenyan Shillings have a much bigger difference (it’s called a ‘spread’) between the buying and selling price. This is because it is in less demand and less liquid. So the rate you get will be quite far away from the mid point (the rate you see on Google) compared to a more commonly traded currency, such as US Dollars. But you are getting the correct rate, it’s just that websites simplify it by showing the mid-market rate.
Bank Fee Number 2: The Middle Man Converting The Money
Payment Service Providers have their own foreign exchange rate though.
Your card will likely be a Visa, Mastercard or Amex.
These payment service providers have their own foreign exchange rates that are usually close to the interbank rates, but not exactly. They will add their own mark-up to the interbank rates.
So for every transaction you’ll also be paying a small charge to Visa, Mastercard or Amex, which is the difference between the provider rates and the interbank rates.
The rates change constantly and which is the best provider for each pair of currencies also changes.
In the past Mastercard has usually offered better rates for the main currency pairs. But it isn’t possible to recommend the best one to go with and you’ll usually be stuck with whichever one your bank uses.
Confusingly the provider rate can be different for credit cards vs debit cards (despite using the same provider!) and they may charge different rates depending on where your card is issued (Visa Europe cards charge a different amount to Visa US cards).
It Only Takes A Minute (Or In Fact A Few Days)
It is worth noting now that the final foreign exchange rate used is usually the one when the transaction is processed, not when you actually buy that alpaca wool jumper you’ve always dreamed of / never knew existed until you went to Peru.
Just like when you buy something back home, it can take a few days to clear your bank account.
For those of you who can see their transactions immediately on banking apps (like Monzo and Starling), these are only estimates of what it will cost you when the purchase is processed several days later.
This means depending on how the foreign exchange rate moves between now and then, it can cost you more or less than you thought. Usually it will only be a few pennies for a meal or £20+ if you are buying that dream Galapagos cruise.
Bank Fee Number 3: Foreign Transaction Fees (Your Bank’s Commission)
These are also known as:
- Foreign currency conversion fees
- Foreign conversion fee
- Cross currency conversion fee
When you pay for something in a different currency than the one your account is registered in, your bank or account provider will pay the amount in the foreign currency. They will then use a foreign exchange conversion rate to work out how much to take out of your account in your own currency.
Your Bank Probably Doesn’t Give A Sh*t
If you have a standard account, your bank will probably decide it owes you no favours and wants to get in on the fee action.
Even if it has branches all over the world and holds billions in multiple currencies (I am looking at you HSBC), it will still claim it is offering a vital service. And therefore can charge a commission for an automated electronic transaction.
This will usually be much bigger than the the middle man conversion rate (e.g Visa) we talked about above. Traditional banks could effectively get away with it until recently, because what are you gonna do eh? They have / had you by the short and curlies. You really really wanted that Peruvian alpaca jumper. And when else would you get the opportunity to buy it after all…?
This commission (fee) can either be a fixed £ amount or a percentage of the price you pay. Or a mixture of both.
Banks that charge both will call them slightly different things:
- Foreign currency transaction fee – for using your card abroad for any reason
- A foreign currency purchase fee for making purchases
- A foreign cash withdrawal fee for taking cash out at an ATM
For example this could be 3% of the price with a minimum cost of £1. So a £100 purchase would cost you £3 commission or £103 in total. Whilst a £1 transaction would cost £1 commission or £2 in total!
This is for both purchases and cash withdrawals from ATMs.
It can even apply when you purchase something in your home country from a foreign trader online, even if it’s listed in your own currency. Foreign transaction fees can even apply if you receive a refund.
Check Your Terms & Conditions
Now is the time to check the T&Cs of your accounts to see what rates you have to pay. And beware, these change regularly.
So read those boring annoying emails and letters your bank sends you when it updates your terms. It could save you £100s in the long run for 15 minutes effort!
So To Recap, So Far You Could Be Charged:
- The Interbank Rate
- The Middle Man Conversion Rate (e.g Visa)
- Foreign Transaction Fees (Your Bank’s Commission)
Seems like a lot right? Well, that’s just the first set of fees…
ATM Fees for Cash Withdrawals
ATM fees for cash withdrawals are in addition to the fees above. These occur whenever you take out money from an ATM, but don’t include card purchases.
Bank Fee Number 4: Local ATM fees
You know when you are in a pub and there’s that crappy ATM that charges you £1.75 or more to take your money out? Well, this is just the foreign equivalent to that.
These fees are charged by the local bank or ATM provider that you use to withdraw your cash.
Often, free ATMs in other countries are not always so widely available. Or if they are free or low cost for local cards they often charge a lot more for foreign cards. This really varies by country and is dependent on the ATM you select to take money out of.
An Easy Way To Avoid This Bank Fee
So before you head to a country do your research on what ATMs provide free or lowest cost withdrawals. Beware that stuff on forums from a couple of years ago is likely to be out of date and what may have been free, now isn’t.
We’ve compiled a whole list of free or low cost ATMs in the countries we’ve visited for you.
In our experience ATM fees can be anywhere from free at all ATMs in a country like Indonesia (just another reason to visit this beautiful country!). Then there’s the other extreme in Thailand where every ATM charges up to £5.35! So you don’t want to be running out of cash on your last day and have to take out £20 in Thailand.
Bank Fee Number 5: Foreign Currency Cash Fee (Your Bank Charging You To Use An Overseas ATM)
This is where your bank decides it wants another piece of the action…
Not all banks charge this, but some do. Again a bank can charge two separate fees as we looked at earlier. In this case they will be called a foreign transaction fee and a foreign cash withdrawal fee. Or if you’re lucky it may only charge one of these, it depends on the bank. The fee could be a percentage of what you take out or a fixed amount and may have minimum or maximum amounts (e.g. charge you a minimum of £1 for a withdrawal).
It’s like the debit card equivalent of the cash advance fees you get on a credit card.
And is basically your bank charging you for using a foreign ATM, when it wouldn’t charge you for using one in your own country. Cheers guys!
Bank Fee Number 6: Credit Card Cash Advance Fees
This is your bank charging you interest to withdraw cash on your credit card. Yuck!
With cash withdrawals (also called cash advances) the fee will be added to the amount withdrawn. So beware that the combined total could breach ATM or card limits and void the withdrawal or lead to a bigger charge from your credit card provider.
Interest on credit card cash withdrawals can start accruing from Day 1, instead of almost 60 days later, as is the case with credit card purchases.
The rates of interest are usually higher than those on your purchases. This is why people will tell you NOT to use a credit card to withdraw cash unless you really have to.
If you do have to, pay these advances off straight away! Beware that cash advances can also cause certain features on your credit card to be limited for 2 clear months, such as zero fees on foreign transactions.
Also when you buy currency at an exchange bureau, buy cryptocurrencies or even use your credit card to gamble, this can count as a cash transaction and so cash advance fees and interest rates will apply.
Bank Fee Number 7: Dynamic Currency Conversion (DCC)
OK, so the fees have potentially really racked up by now. Surely that must be the end of it? Unfortunately no. This is when the dreaded Dynamic Currency Conversion can get you!
When making a foreign transaction (at home or abroad) or when taking cash out abroad you may have been asked by the merchant or the cash point whether you want to complete the transaction in your own currency or to continue in the local currency.
If you select your own currency that merchant or cash point will carry out the currency exchange for you. This is DCC.
This amount in your home currency will be fixed at the point you purchase, rather than a few days later when the transaction completes.
It may seem great that you instantly know the rate and it won’t be adversely impacted by foreign exchange movements in the next few days. BUT this certainty does not come for free. The merchant and their payment service provider will likely add a hefty commission on top of the normal Visa / Mastercard / Amex rates. This will vary by merchant and provider so no real comparisons can be given. As you only see the price in your home currency, it effectively hides the amount of commission unless you have a calculator handy.
And if you really want to instantly know the amount you just spent, in both local and your home currency? Get a banking app (like Monzo or Starling) which shows you the estimated exchange rate straight away.
So whilst there may be some benefit to selecting DCC (if you don’t have an app to show you instantly). In my view, the negatives outweigh the positives and I personally never select DCC.
If an ATM or merchant asks, do not select to complete the transaction in your own currency.
All Of The Fees Above In One Transaction
Additionally if your bank charges foreign transaction fees, they can still charge these in addition to the DCC as it is still a foreign transaction. The ATM fees on cash withdrawals will also still apply as well. So you can be hit by all of the fees above in just one transaction!
Bank Fee Nightmare: Worse Case Scenario
So you can find yourself quite easily and unsuspectingly paying over £10 in total fees on a £100 cash withdrawal. That’s not even including any cash advance interest rates and loss of credit card benefits you may incur if you use a credit card. So this can get very expensive very quickly!
How Do I Avoid These Bank Fees Whilst Travelling?
Some of these fees you can’t avoid (the interbank rate and the middle man conversion mark-up). However you can get banks that act less like crap bags.
Explore More In Our Ultimate Travel Money Guide:
Why Listen To Me?
Hello, I’m James. I’ve worked in finance for the last decade – in banking, investments, risk and insurance. I’m also qualified in financial advice and planning. I’ve also spent almost 2 years travelling South East Asia, South Asia, South America and Central America. So I’d like to think I know quite a bit about travelling and finance!
I will be sharing tips, guidance and my experiences across a range of travel money topics that could be essential for you on your travels.
This post is up to date as of July 2019 and will be updated periodically. Always check with the companies mentioned below and keep an eye out for new ones I haven’t mentioned. I’ve mostly focused on the UK market. Feel free to get in touch with me if you have any tips from your country you would like me to include.
This is what I’ve found to be suitable for our needs. Yours may differ and so the Ultimate Travel Money Blogs can only be taken as a guide rather than constitute personalised financial advice. Please get in touch if you have any specific questions and I will do my best to answer them.
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