Holidaymakers who choose to pay in Pounds when using a card or ATM abroad could be making one of the most expensive mistakes possible with a bank card, according to a foreign exchange expert. Markups on such transactions can range from 5% to 12%, making it costlier than using a mainstream broker.
Common mistakes when paying abroad
Tony Redondo, founder of Newquay-based Cosmos Currency Exchange, said foreign exchange risk affected everyone from pensioners transferring money to an overseas property account to businesses paying international suppliers. He identified several common mistakes, starting with assuming that "zero commission" meant a currency exchange was free.
Mr Redondo said: "Forget the fee. The real cost often sits in the spread, which is the difference between the live interbank rate and the rate you're actually given. 'No commission' is marketing, not pricing. Before exchanging money, compare the rate you're being offered with the live mid-market rate. Even Google will give you a useful benchmark."
Why 'pay in GBP' is a costly choice
The second mistake is particularly relevant to holidaymakers: choosing to pay in Sterling rather than the local currency when using a card or ATM abroad. Mr Redondo explained: "Tapping 'pay in GBP' feels reassuring because you immediately know what something costs in Pounds. But you've effectively handed control of the exchange rate to the merchant's currency conversion provider. Markups run from 5% to 12%, making it one of the most expensive things you can do with a bank card. Always choose the local currency and let your own card provider handle the conversion. Even a mainstream broker at 2–5% beats that."
This process is known as Dynamic Currency Conversion, and banks warn that when customers choose Sterling abroad, the conversion charge is set by the ATM, shop or restaurant rather than their own bank.
Other costly errors for businesses and individuals
The third mistake is putting every international transaction through a single Sterling account. Mr Redondo said: "If you're regularly receiving Dollars or Euros and immediately converting them into Pounds, only to convert money back later to pay overseas bills, you can end up paying for currency conversion repeatedly. A multi-currency account can allow businesses to receive and hold foreign currency and choose when they want to convert it."
For businesses, Mr Redondo said another major mistake was simply hoping exchange rates moved in their favour. He said: "Too many importers and exporters have predictable foreign currency payments but no strategy for managing them. One adverse move in Sterling can eat into the margin on a transaction before the invoice is even paid. If you know you've got foreign currency coming in or going out, tools such as forward contracts can help you manage that exposure rather than gambling on the spot rate available on payment day."
Finally, Mr Redondo warned people to understand how their international payment would actually reach its destination. He added: "SWIFT payments can pass through correspondent banks before reaching the recipient and those intermediaries may charge fees along the way. That's why an overseas invoice can sometimes arrive short. Where local payment rails are available, use them. Where SWIFT is unavoidable, establish beforehand who's responsible for the charges." Correspondent bank fees can be deducted as payments move through the SWIFT network, with charges varying depending on the banks involved.
Mr Redondo concluded: "The biggest currency mistake is assuming the headline fee tells you what you're paying. Whether you're spending £100 on holiday or moving £100,000 for a business, look at the exchange rate, conversion costs and payment route. That's where the real cost often hides."
