How to dodge credit card fees

Credit cards offer convenience. But that convenience comes at a price. As well as high interest rates, customers are often charged a transaction fee when using their cards. And few industries are as enthusiastic about such fees as the travel industry. Ruth Jackson explains who the worst offenders are, and how to avoid their fees.

Your credit card is supposed to offer you convenience. You can pay for things quickly and simply and spread the cost of expensive items. But how much are you prepared to pay for that convenience? Many retailers, in particular those in the travel industry, charge customers a surcharge when using credit cards. And the amount they charge is rising fast.

What are credit card surcharges?

All banks charge retailers a 'merchant fee' for processing payments on debit and credit cards. These charges do differ for example, supermarkets can negotiate smaller fees due to the volume of transactions but in general a credit card fee will be between 1-2.5% and for debit cards the charge is usually around 10p, says the UK Payments Administration. In most cases the retailers absorb these fees themselves so you never know about them. However, some retailers pass the charge on to the customer, and some are charging far more than they need to Monarch Airlines,for example, charges 5% to customers who pay with a credit card and 3.5% to those who use a debit card. And the worst culprit? Ryanair, which charges a credit card fee of £5 per person per flight.

This is profiteering. The credit card companies charge Ryanair a tiny percentage of what Ryanair charges the customer. Worse still, Ryanair charge the same for debit card users when the transaction will only cost them 10p. This is a huge money-spinner for Ryanair, possibly raking in more for them than the airfares themselves.

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Bmibaby£4.50 pppf*£3 pppfVisa Electron exempt
EasyJet£3.50 + 2.5%£3.50Visa Electron exempt
Monarch5% (min £5.49)3.5% (min £2.44)Visa Electron exempt
Ryanair£5 pppf£5 pppfPrepaid MasterCard exempt
Thomas Cook2.5%Row 4 - Cell 2 Capped at £50
Thomson2.5%£2.95Visa Electron exempt£3.50Row 6 - Cell 2 Row 6 - Cell 3
Irish Ferries£5£5Visa Electron exempt

*per person per flight. Source: Which? Money

The travel industry is developing a bad reputation for overcharging customers who pay by card but they aren't the only retailers who do it. Insurance companies, ticket agencies and even some local councils charge over the odds for letting you use your flexible friend. In some cases the charges may be unavoidable if you can't afford to pay for your insurance in one chunk it can make sense to pay the surcharge to use a credit card. Then you can spread the cost by paying off your credit card in chunks (just make sure it's a zero interest credit card). But on many occasions you can sidestep at least some of the extra charges.

How can you avoid the fees?

As you can see from the table above, there is one form of plastic that skirts most of the fees, Visa Electron. Travel companies can only get away with advertising their trips without booking fees if they maintain at least one way of avoiding these fees. Most of them have chosen Visa Electron as the fee-free card mainly because most people don't have one.

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A Visa Electron card is a debit card check your bank card for the Visa Electron symbol. The only real difference is that with a Visa Electron card you have to have the available funds when you make a payment. It won't let you go overdrawn. To get one, you could ask your bank if they can provide you with one for your account, or you can switch bank accounts to a bank that offers them.

However there is an even simpler way to do this. Get a Post Office Travel Money Card. This is a Visa Electron card that you can pre-load with cash. The card itself is free to buy, but there is a 1.5% charge for loading it with pounds sterling as opposed to a foreign currency it's mainly intended as an alternative to travellers' cheques. But at 1.5% it's still a lot cheaper than the fees you'd be charged if you used a credit card.

To avoid Ryanair's fees you'll need a Prepaid MasterCard rather than Visa Electron try the CaxtonFX Global Traveller card which charges a fee of £1.50 per transaction.

Also, when you are shopping around for the cheapest deal make sure you take all the extra fees and charges into account. It may be that once you've included the budget airline's fees for everything from daring to take luggage with you to paying with plastic, you could have booked a cheaper, and much more pleasant flight with a different airline. For example, return flights for two adults to Rome from London Gatwick in December cost £263.75 with EasyJet but for only £245.20 you can fly with British Airways. So don't always assume the budget airlines are the cheapest.

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Ruth Jackson-Kirby

Ruth Jackson-Kirby is a freelance personal finance journalist with 17 years’ experience, writing about everything from savings and credit cards to pensions, property and pet insurance. 

Ruth started her career at MoneyWeek after graduating with an MA from the University of St Andrews, and she continues to contribute regular articles to our personal finance section. After leaving MoneyWeek she went on to become deputy editor of Moneywise before becoming a freelance journalist.

Ruth writes regularly for national publications including The Sunday Times, The Times, The Mail on Sunday and Good Housekeeping among many other titles both online and offline.