Thousands of UAE consumers who are travelling or set to fly abroad this summer could rack up enormous bank charges due to credit or debit card misuse and lack of spending control.
With more consumers now opting for the convenience of using plastic money, financial planners advised holidaymakers to be more prudent with their card usage overseas to avoid inviting unnecessary fees that can hurt the bank account.
uSwitch.com, an independent price comparison and switching service, recently looked into the card usage among UK consumers. It found that 24 per cent of the respondents were planning to use their credit card abroad this summer, putting British holidaymakers at risk of running up over £327 million (Dh1.8 billion) in extra card charges on transactions overseas.
Travellers from the UAE are equally at risk. Visa confirmed there has been an increase in the number of UAE residents swiping their plastic money abroad, with card transactions among travelling customers increasing by 12.2 per cent last year to $2.5 billion.
Security
“It’s a known fact that people prefer using their credit cards when they are out on a vacation. The primary reason for relying on credit cards is because it is a lot safer and secure than carrying cash. However, a lot of people fail to realise that the convenience of using credit card abroad comes at a price,” said Ashok Sardana, managing director of the Continental Group in Dubai.
Sardana said using cards abroad are costly because the exchange rates applied to transactions are not the best in the market, while majority of the banks charge a foreign currency transaction fee of between 1.5 per cent and 2 per cent every time the credit card is used.
A lot of travellers also opt to use their plastic to withdraw cash, inviting additional charges. Majority of the banks impose a withdrawal fee, also known as cash advance fee, ranging from 2.5 per cent to 3 per cent, or a fixed amount that may set a cardholder back Dh100, according to Sardana.
“Withdrawing cash using a credit card is something you should never do unless it’s an emergency or you run out of choices and other options,” he said.
Prepaid
Consumers might, under certain circumstances, do their wallet a favour if they use a good prepaid or travel card instead. Prepaid cards offer the same convenience of a credit or debit card, but the user can put a lid on their spending and avoid some hefty charges.
“Travel card users can load the card upfront in the prescribed currencies. Most of these have the exchange rate lock facility which means it protects the user’s money loaded in the card from any currency rate fluctuation during travel,” said Sardana.
He, however, warned that there are hidden costs to be wary about. Most travel cards charge fees of up to $3 for every ATM withdrawal. “In addition to that, in case of a transaction which falls out of the prescribed currency loaded onto the card, an additional charge of approximately 3 per cent is levied,” Sardana said.
Tips
If you are going on holiday or a business trip overseas and intend to use your plastic, it pays to plan your spending ahead. There are other ways to avoid paying expensive bank charges.
• Choose your card wisely. Opt for one that doesn’t charge foreign transaction fees. “Before you depart, check your credit and debit card agreements first to see if they include such fees. If they do, apply for a no foreign transaction fee credit card as well as a debit card that does not charge extra for ATM withdrawals in other countries. This will help you save almost 2 to 3 per cent on every transaction you make,” said Ashok Sardana of Continental Group.
• For cash withdrawals, using debit card works out cheaper than a credit card, with fees of 2 per cent rather than 3 per cent on top of the transaction fee, and no hefty cash advance interest charges, according to uSwitch.com.
• Maxing out your cards can incur hefty penalties. Avoid the trouble by setting a spending limit on your plastic before leaving the country. “Make sure you know exactly how much you can afford to spend and set yourself a lower card limit by calling your bank before you travel,” said Marcello Baricordi, general manager for Visa in the UAE and head of Global Accounts.
• Be wary of merchants offering to charge in foreign money or US dollars. It is common practice among vendors to use uncompetitive exchange rates, so you could get ripped off in currency conversions. “All you must do is refuse to sign any check or receipt not expressed in the local currency. If you’re worried about deciphering the cost of meals and goods during the trip, just brush up on conversion rate before leaving or just get an App for your phone,” Sardana advised.
• Don’t forget your travel insurance policy and make sure you alert your bank before jetting off, otherwise your bank might suspend your card while in the middle of paying a meal at a local restaurant due to suspicious activity.