Don't get burned by your holiday cards

As you may well be aware, the pound does not go very far in most popular holiday destinations these days. Its value is currently not far off an all-time low against the euro, and has dropped by over a quarter against the US dollar compared with a year ago.

So if you're planning to keep costs down on your next trip abroad, you may be considering painful moneysaving tactics - perhaps staying in less fancy hotels, self-catering or even going away for a shorter time.

But there is one entirely painless way to cut back on your holiday costs. By simply avoiding credit and debit cards that charge rip-off fees when used abroad, and instead travelling with ones with lower or no fees, you could easily save enough to pay for a slap-up meal.

Here are the charges to watch out for, and the best cards to use.

CREDIT CARDS

When you use their credit cards abroad, almost all card issuers sting you with something they euphemistically call a 'conversion', 'handling' or 'foreign usage loading' fee. Usually, it's a commission and it worsens the exchange rate used to calculate the cost of transactions - usually by 2.75%, sometimes by as much as 2.99%.

But there are a handful of card issuers that don't penalise travellers or, at least, whose charges are far lower. The Post Office (0800 169 2000, www.post office.co.uk) charges no commission on purchases made overseas on its credit cards. So, if you spend £1,000 on a Post Office credit card over the course of a year on your travels instead of on a Barclaycard (which charges 2.75% commission), you'll save a tidy £27.50.

For years, Nationwide (0800 302 010, www.nationwide.co.uk) has imposed no charges whatsoever on foreign transactions made on its Visa credit card.

However, it recently decided to abandon this blanket no-fee policy and pass on to customers the charge that Visa makes on card issuers. This means that from May 6, for transactions made outside Europe, there will be a fee of around 1%.

Consumer bodies have slated Nationwide for this partial change of heart. But, to be fair, the 1% fee is still much lower than the 2.75% levied by most other card issuers. Moreover, paying for things with a Nationwide credit card in Europe will remain charge-free, since Visa imposes no charge on transactions made there.

Like Nationwide's, Saga's Platinum credit card (0800 015 5428, www.saga. co.uk) is free to use in Europe and has a 1% charge outside Europe.

Lastly, Abbey's Zero credit card (0800 389 9905, www.abbey.com) is commission-free for purchases made anywhere overseas. However, it's currently not on sale to new customers - Abbey says the card will become available again some time next month.

All these suggestions are based on the presumption that you pay off the balance on your credit card in full each month. If not, taking into account interest charges, other cards may work out better value.

DEBIT CARDS

Using your debit card to settle a hotel or restaurant bill or buy something from a shop when you're abroad can be more costly than using your credit card. This is because, as well as the typical 2.75% foreign usage loading charge, some debit-card issuers levy a sneaky additional flat fee.

For example, Lloyds TSB adds £1, RBS £1.25 and Halifax £1.50.

Moreover, while debit-card issuers generally don't penalise you for taking your money out of ATMs in the UK, virtually all do abroad - on top of the foreign usage loading charge. With Lloyds TSB, the withdrawal fee is 1.5% of the amount (minimum £2, maximum £4.50). With RBS, it's 2% (minimum £2, maximum £5) and with Halifax, £1.50.

Nationwide is the notable exception, on both counts. With its FlexAccount Visa debit card, there are no additional fees for payments, or for obtaining money from ATMs.

So what savings can you make using a Nationwide card? Say you used it instead of the RBS card in Spain to take out £100 worth of euros five times, and pay five bills of £100. Then, presuming the transactions were calculated using the same exchange rates, you would save £43.75.

Do note, though, that from this summer Nationwide is passing on Visa's one per cent transaction fee outside Europe on its debit card, as well as on its credit card.

PRE-PAID CARDS

In the past couple of years, many banks and bureaux de change have started offering these foreign currency cards, which are something like a cross between a debit card and an electronic version of traveller's cheques. You load dollars or euros on to a card, which you can then use at ATMs and retailers, and can top up with further funds while you're abroad.

The cards do have security benefits but they also come with cash withdrawal fees and in some cases other charges such as application and even inactivity fees.

FairFX's Currency Card *(www. fairfx.com) usually has the best exchange rates for loading with euros or dollars, as well as the lowest ATM fees. On a spot check earlier this week, £1,000 would have loaded €1,100 on to a FairFX card, compared to €1,073.5 on a Travelex card. And while FairFX charges €1.50 per cash withdrawal, Travelex charges €3.75. Buy the FairFX card via www.matalan.co.uk to avoid the application fee plus receive £5 free cash to put on the card.

Nonetheless, I would say that Nationwide's debit card is better value - and more flexible - than the FairFX card or any other pre-paid card.