Time for a vacation-time bleat. I noticed yesterday that my bank had charged me £2 for a debit-card transaction – on this occasion, when I used my debit card at Heathrow to buy Swiss Francs so that I could attend a Financial Stability Board workshop in
Basel. It turned out that the foreign exchange company that I used at Heathrow books all of its transactions through its banking operation outside of the UK. My debit-card transaction therefore gets charged by my bank as taking place abroad – not at Heathrow
– and my bank therefore charges a £2 “cash advance fee”. This only shows up on your next bank statement when you notice that your bank has charged you a higher amount than what the foreign exchange company charged you.
My Generation Y son overheard my ensuing phone conversation with my bank , and asked me how all of this works – so I explained, using euros as the example. You buy £100-worth of euros at the airport, and pay £3 commission for that service. If you don’t
spend any of your euros on your trip, you bring them all home with you and change them back into UK sterling – paying another £3 commission for that service. It has cost you £6 in fees – 6% of your original £100 - and you’ve not spent any money at all.
But on top of that, because there is a 12.5% spread between the sell-price and buy-price, the bank only gives you £87.50 for the euros that you paid £100 for. You’ve lost £12.50 on the spread, plus £6 in commission fees.
Plus £2 for having used your debit card in the first place, making £20.50 charges in total. Over 20% of your money lost, and you haven’t spent a penny on yourself.
I already knew why this is – but I’d never worked out just how much this is!