Foreign Perspectives

Archive for the ‘Banking’ Category

Whilst most people will tell you that cards are the way to go, there’s something to be said for having some cash with you too.

As far as cash goes, it’s sometimes handy to take around $100 in US dollars or perhaps 100€ in euro as both currencies are accepted in a lot of places outside their home country. Don’t take anything larger than a 20 as you will, of course, receive change in the local currency and may not want to be stuck with lots of it.

If you’re going to a country which doesn’t use those currencies the best one depends on where you’re going eg US$ are more useful in South America than Euro, but in many former European colonies in Africa the reverse applies.

What about the local currency? If you’re going to a civilised country, it’s usually best to wait ’til you get there and withdraw it from an ATM in the airport. In most other cases you can find that you either can’t get it or there are severe limitations on how much you can get. For example, when I went to India the maximum you were allowed to take in local currency was £5 ($10) which simply wasn’t worth bothering about.

The cost to you is around 7% for amounts of around the $100/€100 if neither are the currency in your own country (don’t believe those “no commission” signs: the actual charge even in those places is around 7%). If you’re going to a fairly civilised country, it’s best to wait ’til you get there as it’s almost always cheaper to withdraw cash in local currency from an ATM than it is to get foreign currency abroad.

If you’ve some foreign currency left over at the end of your trip many places these days advertise that they’ll buy it back off you commission free. That does NOT mean that they won’t be charging you and in fact it usually costs around 3% to 5% to do this. Therefore, if you’re intending to go back to the same country the following year, just keep the cash and definitely do that if you’ve picked up the $100/100€ that we recommended earlier.

Downsides? well, travel insurance rarely covers cash so if it’s stolen, it’s gone. Also, if the country you’re going to doesn’t use the currency you’ve taken then you can pay considerable amounts in commission and other charges to change your money into the local currency. Worth noting is that not all banks offer foreign exchange services.

I’m going to work my way through the various ways you can take money abroad over the next couple of weeks or so which’ll cover travellers cheques (travelers checks), credit/charge cards, debit cards, cash cards and prepaid cards.

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Prepaid cards seem to be breeding like rabbits around the world and every single one is different from the others in terms of charges, features and general usability.

Rather than trawl through all the cards that would pay me to recommend them to you as the majority of card comparison sites do, I’m just going to go through those that are “best” here and tell you why that they’re the best so that you’ll be able to choose which is best for your circumstances.

At the moment there are basically three types of card available:

1. Maestro cards;
2. Visa Electron cards; and
3. Mastercard debit cards.

All of the Maestro cards seem to charge you for the card and a number of them charge you an annual fee too for a card which is very limited in functionality. Therefore, it isn’t worth considering these any further.

At the moment there seem to be only two Visa Electron cards available aimed at the holiday market which is a shame as it’s a very useable card. The Post Office card is free to get, £5 to renew and costs £1.50 per UK withdrawal, £2 overseas; if you get the Euro or Dollar cards their “0% commission” works out at around 3.5% otherwise it’s 2.75% when you use, say, the dollar card in Europe. There’s a 1.5% charge to add money to the sterling card. The LloydsTSB costs £7.50, £5 to renew and costs £1.50 per withdrawal with a 2.75% currency exchange fee when used abroad; on the Euro or Dollar cards their “0% commission” should work out at a similar charge to the Post Office card (they don’t offer a sterling card). That £7.50 initial charge (waived if you have a LloydsTSB Silver account) and much wider availability means that the Post Office card will be best for most people.

The range of Mastercard debit cards is vast. The majority of these cards have a monthly or annual fee which makes those ones very expensive which is a shame as this is the most useful of the three types of prepaid card currently available. However, the FairFX card is free if you load £500 or more onto either their Euro or dollar cards or alternately via this link for £10 upwards (it’s £9.95 for a three year card otherwise) and costs £1/€1.50/$2 to withdraw cash (there’s no transaction charge for purchases). The card is renewed free if you top it up at least twice over the three year validity of the card, otherwise it’s £6/€9/$12. The ICE card is free to issue from £100/€100/$100, £1.75/€3/$3 to withdraw cash and charges 4% for all currency conversions. It’s renewed free if your balance on the card is at least £50 when renewal time comes up otherwise it’s £3/€5/$5. They charge £1.75 per purchase transaction when you use the sterling card in the UK but the euro/dollar cards are free to use for purchases everywhere and the sterling card is free to use everywhere except the UK for purchases. Purely on the published charges this makes the FairFX card the one to go for but it’s even better than that as they only charge about 1% for currency exchange.

So, which of all of these cards should you get?

1. The very clear winner is the FairFX card which is free to issue via this link, £1 per cash withdrawal and about 1% to convert the money to euros/dollars. If you load your card at least twice every three years (the topup when you get the card to begin with counts), renewals are free otherwise they’ll charge you £6. Topups are via debit card or bank transfer; in theory you can topup via credit card but FairFX charge you 1.5% to do this and you could get hit by cash advance fees from your bank too if you do this.
2. In second place comes the ICE card which is free to issue and renewed free if you have at least £50 on the card at renewal time, £1.75 per cash withdrawal and 4% to convert the money to euros/dollars. You can top-up online by credit/debit card or in their branches with cash, cheque or credit/debit card.
3. In third place comes the Post Office card because it’s free to issue, £5 every two years free to renew, £2 per cash withdrawal and about 3.5% to convert the money to euros/dollars. You can top-up the card with cash or credit/debit card in a Post Office branch or by phone or online with a credit/debit card. The big plus point of this one is that you can get it immediately from a Post Office branch so if you’re looking for a last minute card before you head off on holiday, this is the one to go for although do bear in mind that the card needs to be activated before use ie you can’t get one in the Post Office in the aiport, get on the plane and use it immediately in the resort.

What would I get myself? The FairFX card in that the charges are so low. This is a truly excellent card and if you remember to top-up twice every three years it’ll not cost you anything to operate. I’d also consider the Post Office card in that it’s useful to have both Visa and Mastercards as not everywhere takes both and you could come unstuck if you only took one.

For true emergency use the Post Office card comes into its own as you could get someone to get one for you in the Post Office and post/courrier it to you whilst you were on holiday.

You should consider these cards only as backup to your normal credit/debit cards. For use abroad, the best bet remains the Nationwide Building Society‘s Flexaccount (Visa debit or Cirrus) which has no charges at all for withdrawing cash or converting from sterling to any currency [sadly as of November 2010 it’s no longer free]. Alternatives to this are Abbey’s Zero Card (Visa or Mastercard) which appears to be even better than the Nationwide offer. Other credit cards with no foreign exchange fee include Thomas Cook (Mastercard), the Post Office (Mastercard) which charge nothing where-ever you are and Saga which charges nothing in Europe and 1% outside. Finally there’s the Egg Money card (Mastercard) which charges 2.75% for currency conversion but has no transaction charges for cash withdrawals and pays a quite respectable rate of interest when the account is in credit; it’s an excellent choice if you like to budget your holiday spending as you can use it like a savings account [sadly now one of the very worst cards to have after Citibank “improved” it].

In theory the answer is simple: when the exchange rate is the best. The only problem with that is that nobody knows when the “best” rate will be reached.

Fortunately there is another approach which works well no matter what the exchange rates get up to and that’s using what’s technically called pound cost averaging. Sounds complicated but what it involves is you buying your foreign currency regularly throughout the time from now ’til your holiday arrives. That way you avoid the ups and downs of exchange rates.

Those ups and downs can be quite substantial too. Over the past year the euro has swung up and down around 12% whilst the pound seems on a steady rise against the dollar (up around 14% over the last 12 months). You might think that it would be better to leave off buying dollars ’til you get an even better rate but we might be at the peak already and just not know it yet.

So how do you go about it? The simplest and cheapest way is to use something like the FairFX card which is free via that link and offers the best rates around. Minimum top-up is only a tenner and you can top-up via standing order which cuts out a lot of hassle. Alternatives are from CaxtonFX (minimum top-up £100) and the Post Office (minimum top-up £50, charge around 3.5%).

Quite a nice way of saving for that next holiday and it should save you money too.

It’s been a long time since we’ve mentioned anything of consequence about France.

The main reason is that there’s nothing much of note happening. Having said that, over the past few months we’ve had a growing level of interest in Mas Camps with three or four more interested parties having a look at the place. The latest one is offering a mixture of cash and a house which seems interesting if a little complicated financially and legally.

Alongside that we’ve had the usual run of bills from assorted arms of the French government who don’t seem to be able to fully grasp the concept that we’re no longer living in France. One particularly interesting one is for a tax that’s only payable if you’re living in France for which they’ve managed to change the address to an “interesting” (read: barely legible) version of our home address here ie they know that we’re not living there yet still sent a bill for a tax that would only be payable if we were!

It appears too that the rumoured bypass of the village is going ahead with the new road to be finishing up not too far from our front door.

These days most people wouldn’t even think about travellers cheques. After all, surely the pre-paid cash or debit cards are far more practical and they’re accepted everywhere too, aren’t they?

Whilst it’s true that they’re accepted in most places, cards aren’t accepted everywhere. Even in those places where they are usually accepted there are occasional technical problems that crop up, sometimes quite frequently in relatively isolated places where not having an alternative method of payment would cause significant complications for you. Don’t think that these are places that only intrepid explorers will reach because the technical problems can crop up quite often in country areas of the most civilised of countries. Usually, of course, they happen in the most difficult of places and awkward of times.

For most places, you don’t need to consider travellers cheques as a primary means of payment basically because they’re too expensive as they usually involve both costs in purchasing them and again when using them (check if you can use them like cash rather than needing to cash them in a bank branch). However, it’s worth buying around US$250 or so for those awkward times when you really do need them. For maximum flexibility, it’s best to buy Visa or Mastercard branded cheques issued by a non-American bank (Thomas Cook is the brand that seems best known worldwide). Don’t cash them when you get home as they’re valid indefinitely and repurchasing them for each holiday just increases the cost for you.

Keep a note of the cheque numbers, cancellation phone numbers, when you bought them and where you bought them as you’ll need this information if they’re stolen.

So, yes, despite all the promotion of prepaid cards these days, it is worth keeping a few travellers cheques.

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