By Mark Fairlie
Hidden currency fees cost British travellers thousands of pounds when they buy foreign cash, says new research from Capital Economics.
The analysis shows that, in 2015 alone, the UK public lost more than £5.6 billion to these secret bank and broker fees without realising; including more than a billion pounds in holiday money, overseas cash withdrawals and cash purchases.
Currency firm Transferwise has also said that traditional banks are charging anywhere up to 5% in hidden costs when Brits send money to a bank account abroad, meaning people across the UK are paying out to access their own money.
Hidden fees costing £17,000 per person
In a survey of more than 8,000 UK customers, Transferwise found considerable costs for both individuals and businesses making transactions overseas in the foreign exchange market, the BBC said.
If a holidaymaker were to transfer GBP (£) to USD ($), a typical UK bank could offer an exchange rate of 1.18 compared to the interbank rate – the rate at which banks transfer money to each other – of 1.23.
So, for every £1000 transferred, the consumer would ‘lose’ $50 of their own money. Since this loss is not included in the officially stated charges, it is technically considered a ‘hidden fee’ which many believe banks should have to declare.
Transferwise is just one of three tech companies commissioned to research into these hidden fees by YouGov and Consumer Intelligence. The study found that the average Brit will pay more than £5,000 in hidden fees over their lifetime.
When inflation is taken into account, this equates to nearly £17,000 just in hidden charges for exchanging their currency. And it’s not just holidaymakers that are losing money to these deals.
Because of considerable foreign exchange mark-ups, small and medium-sized businesses in the UK have been charged around £4.1 billion in hidden fees; equating to roughly £755 per company.
The real cost of “free” holiday money
Transferwise claim on their ‘Stop Hidden Fees’ site that the “British public is owed £5,668,000,000” in hidden fees added on to their currency exchange.
The campaign also calls out suppliers on the average cost of hidden fees when changing £500 into euros.
Whilst many providers stress things such as 0% commission, “free” or zero fees, consumers actually pay £30.47 when exchanging through the Post Office, £22.57 through Thomas Cook, and a shocking £51.97 with Travelex through Heathrow.
Kristo Käärmann from Transferwise, says that it is
“fine to charge a fee for the service but people should know what that fee is rather than hiding it from customers who think they are paying zero or negligible fees.”
The price of international transfers has also been shown to cost more than suppliers initially tell customers. When sending £1,000 to euros, banks and building societies such as HSBC will state prices as low as £4 whilst actually charging between £40 and £65 per transfer.
Trouble finding the best deal
A study by the government’s Behavioural Insights Team also found that more than half of those surveyed were unable to pick the best of four different foreign exchange deals when presented with information typically supplied by providers such as banks, post offices and the bureaux de change.
This shows just how unclear the British public are when it comes to deciding which deals offer value for money.
Elisabeth Costa from the Behavioural Insights Team told the BBC that
“small businesses and consumers in the UK are charged billions each year in hidden foreign exchange transaction fees. We found that adding clearer information, particularly total costs in pounds, greatly increased consumers’ ability to identify the best value deal.”
Consumer journalist and spokesperson for the Stop Hidden Fees campaign, Harry Wallop, says that it is
“impossible to know how much your foreign currency is costing you”.
When buying holiday money or making international transactions, pricing structures are often designed in order to “confuse you and obscure the real costs”, says Wallop, allowing banks and brokers to overcharge without consumers realising.
Wallop adds: “It’s time the Government took action on behalf of the consumer and deliver on their pledge to Stop Hidden Fees.”