How to avoid non-sterling transaction fees when travelling abroad and paying online

It’s all too easy to get caught out paying needless fees when travelling abroad or paying online. This is because some UK banks charge their customers fees of around 3% when paying for items in a currency other than sterling. It might not sound like a lot, but it’s a cost that can easily add up.

While it’s common to pay these fees when spending abroad, you can even pay non-sterling transaction fees when you’re buying items from non-UK websites.

Fortunately, there are ways to avoid non-sterling transaction fees.

Reviews of accounts with no or low non-sterling transaction fees

What is a non-sterling transaction fee?

A non-sterling transaction fee is a fee that some banks and building societies charge when you withdraw cash or make a purchase in a foreign currency.

The bank converts the transaction from sterling into foreign currency, and it might then charge you a fee for the privilege.

This is usually calculated as a percentage of the transaction amount. So, if your bank has a non-sterling transaction fee of 3% and you bought something for €100 (£86.51, correct as of 6 October 2023), then the bank would charge you €3 (£2.60) on top of the purchase price.

The fee appears in pounds and pence on your bank statement, depending on what the exchange rate is at the time. You will see 2 transactions: one for the actual payment and another for the fee.

While some of the smaller challenger banks are free when paying in another currency, many big banks charge foreign conversion fees of around 3%.

Some even charge extra on top, sometimes a flat “cash fee” of £1.50 per transaction regardless of the amount, which can easily add to the overall cost.

What types of transactions are subject to foreign transaction fees?

There are 2 main types of transactions that could be subject to foreign transaction fees.

• Card payment. If you’re paying for items or a service on your card in a foreign currency, then your bank might charge a fee.
• ATM withdrawal. You may also be charged for withdrawing foreign currency from an ATM.

Banks tend to have different fees for paying with a card than withdrawing cash, so you might want to find out which is the most cost-effective option.

Some banks limit how much cash you can withdraw from an ATM before you have to pay a fee. So, for example, you might be able to withdraw £200 in foreign currency over a month for free, but anything over that amount might incur a fee set by the bank.

How to avoid a non-sterling transaction fee

Buy local currency before going abroad

It can be handy to have some cash available when you arrive in another country, but it could also save you money too.

Most foreign currency exchange desks in the UK don’t charge fees to convert the cash. However, make sure to shop around to make sure you’re getting a competitive exchange rate. Otherwise, you won’t feel the benefit of avoiding the fees. It’s usually best to avoid going to exchange kiosks at the airport because the exchange rate tends to be uncompetitive.

If you’re buying foreign currency using your card, you might need to show a valid ID such as a driver’s licence or a passport. You can exchange cash in person or order online and get the cash delivered to your home.

But bear in mind that carrying around a big wodge of cash might not be very safe. If your money is lost or stolen, then you’re unlikely to get it back. So you might also want to use a fee-free card, as we explain in the next section.

Find a travel money card/debit card/credit card with low or no foreign transaction fees

One of the easiest ways to avoid foreign transaction fees is to use a debit or credit card that doesn’t charge them.

Fortunately, many of the top-rated current accounts don’t charge foreign transaction fees, so you don’t have to look very hard to find a good one.

Or you could sign up to a specialist travel card that lets you load money onto it and choose from a range of currencies without incurring any fees. These cards usually come with an app to make it easy to add money and move funds between currencies.

Select the local currency if at an ATM or a pay-point

When withdrawing cash or paying for things with your card while abroad, the machine should give you the option of paying in sterling or the local currency.

It’s usually more cost-effective to opt for paying in the local currency. This is because the transaction will be converted using the exchange rate set by your card provider, such as Visa or Mastercard.

But if you select the sterling option, then the exchange rate will be set by the retailer or the ATM owner – known as the “dynamic currency conversion” (DCC). Not only are they likely to have an unfavourable exchange rate compared to the one set by your provider, but you could be charged fees on top, so it’s usually best to avoid this.

Avoid making transactions in foreign currencies when paying for something online

If you’re buying an item online using a non-UK website, the payment may also incur a non-sterling transaction fee.

You might want to either avoid using websites that charge you in foreign currency or use a bank card that doesn’t charge fees.

Some international websites let you set your location as the UK, which might convert the price into sterling. Check the exchange rate and whether the website adds any extra fees.

Bottom line

It’s best to think ahead before you travel by exchanging cash and signing up to a fee-free bank account, which will give you one less thing to worry about when you’re away. If you are using your card abroad, make sure to always pay in the local currency to keep your costs down.

If you are on the hunt for a debit card with no foreign transaction fees, a growing number of banks offer current accounts that are free to use when spending abroad — and some come with extra perks such as cashback, too.

Frequently asked questions

• Do all UK banks charge foreign transaction fees?

  While many big banks charge non-sterling fees, some of the smaller ones don’t.

  The fees and withdrawal limits also vary depending on the account. So, for example, many of the big banks offer premium accounts that don’t charge foreign transaction fees, but you usually have to pay a monthly fee for the privilege.

• Is it better to use a debit or credit card abroad?

  Whether it’s better to use a debit or credit card abroad largely depends on whether the account charges foreign transaction fees.

  You can find both debit and credit cards that are free to use abroad, so it’s best to check before you travel.

  Also, bear in mind that when you spend between £100 and £30,000 on a credit card, the transaction could be covered under Section 75 of the Consumer Credit Act if there’s a problem with the goods or service you’ve purchased.

  You don’t get this same protection with a debit card, but you might be able to raise a chargeback claim instead.

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