Foreign Perspectives

Archive for the ‘Finance’ Category

The best place to do this is in a technology shop because the majority of people aren’t on solid ground in respect of knowledge of the product.

This lack of knowledge makes it difficult for them to place a value on the products being sold. Added to this is the fast changing nature of the products which often leads to illogical pricing whereby better products can cost less than inferior ones.

I saw a great example of this in PC World (always an excellent hunting ground for this type of thing) at the weekend. A couple were in to buy a netbook for their daughter. The netbook cost £239 but they were talked into paying over £600 for it and that wasn’t even counting the software that they were subsequently talked into as well. All of this stemmed from the “small” payments of £25 a month and the potential to get another “free” laptop at the end of two years. Of course, by that time, they could have bought at least three laptops with the money.

The other problem that’s particularly noticeable in the netbook market niche is that a large PC shop can have anything up to around 20 different netbooks ranging from £170 through to around £370 with seemingly little to distinguish them. I question whether a normal customer would be able to tell whether having an N270 was any different than having an N455 or N550 and in reality few people would notice the difference in processing power. Even the battery life is a very iffy means of distinguishing between models as one shop can have a netbook with a 4 hour battery life at the same price as another shop with the same model but an 8 hour battery life.

The fast moving prices also creates anomalies with newer and better models quite often costing less than the older model even when discounted. Thus the “massive discounts” that were previously available on the Sony 300 and 600 readers barely brought them down to the price of the much improved 350 and 650 models.

So, lots and lots of ways that you can be ripped off!

Everyone will tell you that credit cards are the thing to use on holiday and they are, most of the time.

The problems with credit cards are that they’re not always accepted, how you get charged depends on how you use them and you can end up with unexpected shocks when you return home and find all the charges you’ve racked up. That said, you’d be very unwise to go on holiday without one.

Credit and charge cards operate in much the same way and the only practical differences are that charge card bills are supposed to be repaid in full at the end of the month and that, usually, they don’t tell you what your credit limit is with a charge card. Don’t believe those stories of charge cards coming with no limit: there is one, it’s just that usually they don’t tell you what it is.

For holiday purposes there are really only five international-use versions that you could reasonably expect to be able to use abroad. By far the most common are Mastercard and Visa which are accepted pretty much everywhere that accepts any card. One thing to watch is that acceptance of both is not universal nor are both equally accepted in all countries: usually Visa is the best to go with if you’re only taking one but in some countries Mastercard is much more widely accepted and shops that accept one do not always accept the other.

Next up is American Express which is widely accepted in America, Canada and the United Kingdom. Outside those three you would be very unwise to try to use it as your only card. The one big advantage it has is that you can get the card replaced if it’s stolen abroad although you may need to trek quite a bit to find the nearest American Express office where they can do that for you.

Finally there are Diners’ Club and JCB. On the whole, it’s not worth considering Diners Club as the acceptance rate is just far too low. JCB is widely accepted in places where you find Japanese tourists but you’d be better going with Mastercard or Visa as anywhere that accepts JCB will accept them too.

Discover isn’t accepted outside North America. Also worth noting is that cards issued in America or by an American owned bank anywhere are not accepted in Cuba or Vietnam. This obviously includes MBNA (owned by Bank of America) who issue a wide range of affinity cards from their various subsidiaries around the world: check your card agreement to see who is really behind it as it doesn’t always say on the card.

Note that acceptance of cards is neither universal nor universally practical. If you are travelling to countries off the tourist routes you can find that cards aren’t accepted or are only accepted in widely dispersed locations. For example, in India I found that using cards simply wasn’t practical and one family that stayed with us found extreme difficulty in using their American Express card in France (the only card they’d brought) as it’s accepted by less than 10% of the banks and few hotels. The easiest way to check coverage is to look at the Visa or Mastercard sites.

Where these cards really come into their own is in booking hotels and renting cars. You usually can’t guarantee a hotel reservation without having a credit card and you can’t rent a car without one either. Outside of those they can be amongst the cheapest means of getting foreign currency available to you. I say “can be” because you need to know how the banks charge you for using them first.

Bank charges on credit cards come in several basic forms. First, there is the interest that they charge on the credit; if you pay your balance in full each month the majority of cards don’t charge any interest. Some very low rate cards charge from the time of purchase even if you pay in full so check if your rate seems unusually low. Second, they charge transaction fees when you use the card to get cash and will usually charge interest from the date of withdrawal. Typically these fees are around 2% with a minimum charge of £2/$2 per transaction therefore it’s best to withdraw amounts of £100/$100 to minimise this charge. In most cases, there is no transaction charge when you buy things using the card so it’s better to do that instead of withdrawing cash. Thirdly, they usually apply a foreign currency charge which is typically around 3% (no minimum). And, of course, there may be an annual fee for having the card.

Despite all that, it’s still usually cheaper to get cash on a card than to buy travellers cheques as your cost will typically be around 5% max compared to the 7% or so for travellers cheques.

Downsides are basically those charges but, if you’re careful, you can minimise them. For those living in the UK, a Post Office credit card eliminates all but the cash withdrawal charges and if you’re in the American military a USAA card works in much the same way and CapitalOne in America also issues cards with no foreign exchange charge.

This is part of a little series on travel money which has already covered taking cash and will be covering debit cards, cash cards, prepaid cards and what to do when (and it will be when) your cards are stolen.

One of the least well promoted things in the OU is that we’re eligible to apply for the student card issued by the NUS.

At first sight, forking out £10 or so for the card doesn’t seem like a great plan but what makes it worthwhile is that as well as being a student ID card this card also gives you lots of discounts too. So many in fact that I usually find that it’s paid for itself within the first month or two.

On the whole, the discounts are from companies who you’d expect to have a significant number of student customers which means that many of them aren’t of major interest to the mainly mature students from the OU. So, for instance, I don’t see myself ever using FlatMatch. On tbe other hand, I save about £5 a month on my Fitness First membership and Wendy regularly gets 10% or 20% discount from Peacocks and New Look plus there’s the useful 5% off Amazon and free delivery from £5 too.

If you’re not sure whether it’s worth it for you, you can have a look at the discounts on their site first.

Separate from this, but potentially even more valuable are the student discounts available for Microsoft products (up to 100%!).

Although many people would tell you that travellers cheques (or travelers checks) are past their sell-by date, that’s not the case.

Their major plus point is that even if they’re lost or stolen, you can still get the money back which is not the case if you were carrying around the same amount in cash, their closest equivalent. In both American and Canada they can be used as though they were cash even in places that say “no checks accepted” and you can also treat them this way to some extent in the UK.

As with cash, it’s useful to have some travellers cheques in either US$ or Euro. If you’re going to America go with US$, Europe or Africa Euro are generally best. One key difference is that because you may be charged to cash them, it’s best to stick to 100 denominations rather than 20’s as we recommended with cash. Banks cashing them usually charge some combination of a per cheque fee and/or a percentage with, of course, a foreign currency conversion charge if the cheques aren’t in their local currency. You can avoid these charges by cashing them at an office of the issuing bank. Again, if you’re going to a civilised country it’s best to consider these as a backup and just get cash in an ATM when you get there.

Since there’s no expiry date on the cheques, you should keep any uncashed cheques for future holidays if they’re in a mainstream currency which’ll save you on charges and commissions.

Unlike cash, travellers cheques come with a brand and it’s best to stick to the more common ones which are American Express, Mastercard, Visa and Thomas Cook. Normally your bank will issue cheques with one of these brands plus their own. You can’t use American Express or any American issued cheques in either Cuba or Vietnam.

Charges are similar for cash at around 7% (even in “commission free” places). Sometimes it’s cheaper to get cash, sometimes travellers cheques. Check at your bank if they’ve any special offers for customers but otherwise shop around.

Take them in the currency of the country you’re going to if it’s a mainstream one, otherwise dollars or euros. If you have any left over after your holiday, keep them rather than cash them in your bank as you can use them later (there is no expiry date) and this will save you paying the commission again. If you buy travellers cheques on a card, it counts as a cash advance with all the charges that implies. Make sure that your travellers cheques come with the Visa or Mastercard or American Express brands as others may not be accepted. You can’t use American Express travellers cheques in Cuba or Vietnam nor any issued by American banks.

Downsides are that you will have to pay to cash them at foreign banks which will involve an additional exchange rate charge if they’re not denominated in the local currency. Worth noting is that not all banks cash travellers cheques and, bizarrely, some require you to have an account with them before they’ll cash them.

I’m going to work my way through the various ways you can take money abroad over the next few weeks. I’ve already covered cash and travellers cheques, and will be covering credit/charge cards, debit cards, cash cards and prepaid cards in future episodes.

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.