Financial Perspectives

One thing never to neglect when you’re living abroad is the cost of changing money from one currency to another yet virtually nobody considers it.

The costs can be quite substantial too. A friend of mine who was living in Brussels once casually remarked that he just used the Halifax as he did at home, lifting EUR 20 or EUR 30 whenever he needed it. He was more than a little takenaback when I pointed out that by doing that he was paying around 10% of his entire salary in bank charges. Yes, that much.

We’ve had quite a run of Brits living in Spain stopping with us on their way to/from the UK this year and I was very surprised to find that only one of them used the Nationwide credit card. Yet, that’s the only one that offers free exchange from sterling to other currencies (and all of the people concerned were living on a UK based income).

The other alternative for euro-zone countries is the Halifax which operates as Banco Halifax in Spain. They offer free transfers from UK based Halifax (and Bank of Scotland) accounts to Halifax in Spain. Although they don’t currently operate elsewhere in Europe, the Spanish outfit is quite sufficient for those in eurozone countries as you can, of course, use the supplied debit card outside Spain for purchases (it’s a bit expensive for ATM withdrawals outside Spain).

Very handy and the whole thing operates in English.

Cash cards are much more limited in function than credit and debit cards but they have one really big advantage abroad: without the PIN, they’re useless and therefore they’re of much less interest to thieves.

Cash cards for international use come in only two versions which are Cirrus and Plus. Both are linked to your bank account although you can also get prepaid versions of both.

These cards can’t be used in shops to make purchases and are limited to withdrawing cash from ATMs. Some banks put these symbols on their cards without considering that it means the cards can be used overseas so the charging for overseas transactions is sometimes less than clear. Once or twice I’ve found banks who were so sure that their card couldn’t be used abroad that they had no provision for making additional charges in their terms and conditions (and didn’t in my case, but don’t rely on that).

Although it’s not always clear, you can use Cirrus cards in all Mastercard branded ATMs and Plus cards in all Visa branded ones. You need to check that the country you’re going to has ATMs (not all do!) as these cards can’t be used over the counter in banks. Also, check that it will be practical to use them eg in India I found that ATMs were not widely available and Rarotonga didn’t have any ATMs until quite recently.

Charges on these are made up of a transaction charge of around 2% with a minimum of £2/$2 plus a foreign currency conversion fee of around 3%. It’s therefore best to make withdrawals of £100/$100 at a time to minimise these charges.

Downsides are basically those charges and the fact that you can only use these cards in an ATM. For those living in the UK, a Nationwide cash card eliminates all charges and if you’re in the American military a USAA card works in much the same way. If your bank is a member of the Global Alliance (Bank of America, Bank of Nova Scotia, Barclays, BNP, Deutschebank and Westpac) then you can withdraw cash from one of the other member banks ATMs without the transaction charge (you still get charged the foreign exchange fee).

I’m going to work my way through the various ways you can take money abroad over the next week or two in the travel money series. I’ve already covered cash, travellers cheques, credit cards/charge cards and debit cards and will be covering prepaid cards in the next episode.

One of the first shocks that you get when you start your own business is the extra cost of business accounts. Whilst the list of charges for personal accounts is usually fairly short, there seem to be untold numbers of things that banks feel the need to charge you for as a business.

Now, you would sort-of expect that they would charge you if you’re depositing large amounts of cash in that there’s obviously work involved in handling it. You probably also know that they charge a percentage of your credit card sales too and that there’d be a charge for the credit card terminal too. But setting up the terminal? Providing the software for it? Surely not?

Well, if you plan on taking everything from your own bank, yes, you probably will be charged for setting up the terminal and you probably will be charged for the software required to run the thing too (anything up to $500). Not only that, but try accepting card payments online and you’re potentially talking another $500 for the software that you’ll need to accept those payments too.

That’s just for the standard Mastercard and Visa acceptances too. Add American Express or anything else and you add to your costs yet again. Even commonly used things such as the ability to process customer not present transactions is generally seen as another opportunity to charge you.

What the bank won’t be too upfront about telling you is that you can get a merchant account from a separate organization. There are increasing numbers of these outfits around and the market competition is driving prices down with the likes of First Data providing free setup, free point of sale software and 24/7 service (something that, quite surprisingly, isn’t always provided by the banks) and things that you might expect to be standard but usually are billable such as reprogramming of the terminal.