The amounts of money involved when buying a property abroad tend to be a bit on the large side. You might be getting a lot for your money, but when you have to think about paying your deposit, buying furniture, paying for a solicitor and buying the wife that diamond necklace she’s been asking for as a celebration, the amounts of money involved are more than most people choose to carry in cash when travelling abroad.
Using your credit card to pay for these big spends, much as you would do at home, may seem like the perfect solution. You might already have checked with your credit card company and found they don’t charge commission on purchases abroad. But beware! Most credit card companies incorporate hidden charges into their foreign currency transactions.
Don’t believe me? Test it out. Take any credit card statement that includes a purchase made abroad. Note the date of transaction and the exchange rate charged.
Now go to http://www.oanda.com/convert/classic . This useful tool allows you to check exchange rates for 164 different currencies on any given date, and they use the most neutral banking rate available.
Using your credit card to pay for these big spends, much as you would do at home, may seem like the perfect solution. You might already have checked with your credit card company and found they don’t charge commission on purchases abroad. But beware! Most credit card companies incorporate hidden charges into their foreign currency transactions.
Don’t believe me? Test it out. Take any credit card statement that includes a purchase made abroad. Note the date of transaction and the exchange rate charged.
Now go to http://www.oanda.com/convert/classic . This useful tool allows you to check exchange rates for 164 different currencies on any given date, and they use the most neutral banking rate available.
For example, leave the “convert amount” field as 1 and choose the date of your purchase in Turkey. Select GBP (the international code for UK Sterling) from the menu on the right-hand side. Now select TRL (Turkish Lira) - the foreign currency in which you paid for your goods - from the menu on the left-hand side, and click on the Convert Now button. This will give you the number of Turkish Lira to the pound on that date. Now compare it against your credit card’s exchange rate. Notice the difference?
In the example below, I’ve chosen today’s date, Saturday, 8th October, and the rate is 2,379,992 lira (2.379992 New Lira or YTL) to the pound. The rate here in Altinkum is 2.35 so not far off.
Now a live test – my credit card’s rate against the local exchange rate here.
Today I bought myself a nice diamond ring for £1,000. Don’t ask me why – I just felt like splashing out. The jewellers used the local rate and put it through on my credit card at 2.35 YTL to the pound, charging me 2350 YTL or 2,350,000 Turkish lira. However, my credit card statement lists the purchase as £1,053.81!
Now if I look again at my credit card statement I can see that the exchange rate used was 2.23 YTL. So the jeweller must have ripped me off, right?
Wrong. The jeweller didn’t rip me off – my credit card company did. Although they say they don’t charge any commission or fees on currency, this isn’t strictly true – they just don’t charge it separately and they don’t disclose it clearly in their paperwork. A dirty trick? Possibly, and one that the Consumers’ Association is fighting against. As Jamie Felix of The Guardian says in the article linked below, Visa and Mastercard had to refund around £400 million in improperly disclosed foreign currency fees to customers in New Zealand after a court ruling that the customers were not made aware of the charges by the credit card companies.
So what can you do? Read the small print for your credit card very carefully, understand what the charges are, and factor it into each purchase – in essence, bite on it.
Alternately, pay cash, use Traveller’s Cheques (although these can be hard to exchange) or change credit cards. Nationwide and Lombard Direct don’t make any charges for foreign currency purchases and some others offer cheap fees or deals that offset the cost.
The charges may be there but as publicity grows, hopefully the card companies will buckle and reduce their fees or at least make them clearer. Until then, it’s cash or charge.
For more information check out this excellent article on the Guardian website:
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Copyright 2005
Turquoise Homes
