Part 2: Why ‘no foreign exchange fees’ on the new Lloyds Avios Rewards cards is a game-changer

I am dedicating all three articles today to the new Lloyds Avios Rewards cards.  Post 1 is an overview, and Post 3 looks at the upgrade voucher.  This post looks at the FX fees benefit.

For me, the most surprising part of this announcement was the fact that there will be no 3% foreign exchange fee added to transactions you make with either of the two Lloyds Avios Rewards cards.

To put this in perspective, never before has a UK rewards card – of any sort – also offered ‘fee free’ foreign exchange transactions.

In general, before today, it was almost always a bad idea to use a mileage card for overseas spend.  This is because all miles and points cards – and indeed almost all other UK credit and debit cards – charged a foreign exchange fee of 2.75% to 2.99%.  Most card issuers hide this fee so you don’t realise you are paying it, because they simply adjust their exchange rate by 2.75%-2.99% rather than breaking the fee out.

There were a number of credit cards, however, which did NOT charge any foreign loading fees.  None of these offered rewards.

With ‘fee free cards’, your transactions are converted at the wholesale exchange rates set by Mastercard or Visa, which to all intents and purposes are the ‘spot’ rates.   Before the Lloyds card launched, the best offerings were from the Halifax, Saga, the Post Office and Capital One, who have cards with no annual fee and no FX fees on purchases.  Nationwide also offers a good card, but only for its FlexAccount holders.  If you live in London, Metro Bank was another option with a ‘no FX charges’ debit card.

Some mileage cards offered a bonus for foreign spending, but still charged the 3% fee.

The American Express Preferred Rewards Gold card gives you double points when you use it abroad.  This means you get 2 Membership Rewards points per £1, which converts to 2 Avios per £1.

The IHG Rewards Club Black Visa card gives you 4 Priority Club points per £1 spent abroad, double the normal rate.

In both of these cases, the ‘bonus’ for foreign spend brought your total reward up to about 2p of value per £1 spent, but this was outweighed by the 2.99p per £1 FX fee.

(Of course, spending abroad also helps you to achieve spending targets.  The IHG Rewards Club card mentioned above also gives you a free night voucher when you spend £10,000 per year.  And of course the BA Premium Plus Amex gives you a 2-4-1 voucher for Avios redemptions valid in any class when you spend £10,000 per year.  It was often worthwhile paying the FX fee on your credit card in order to achieve some of your spending target.  After all, for most of us our holiday is one of the main expenditures of the year.)

The new Lloyds Avios Rewards card lets you have the best of both worlds

Your best option, before yesterday, was either:

Use an Amex Gold or IHG Rewards Club Black card, earn the equivalent of 2% back in benefits but pay the 2.99% fee

or

Use a Halifax, Saga, Post Office etc ‘no fees’ card but get no rewards

The new Lloyds Avios Rewards card lets you earn 1.25 Avios per £1 on the Amex card AND saves you the 2.99% foreign exchange fee.  If you spend more than £800 abroad on your credit card each year, the saving on foreign exchange fees (at 3%) would outweigh the £24 annual fee for the card.

For this reason, I recommend getting a £24 Lloyds Avios Rewards card even if you only use it for overseas spend.  Whether you should bother to put additional spend on the card depends on whether you value the other benefits …. which is what Part 1 and Part 3 of my series of posts today discusses.

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How to earn Avios from UK credit cards (April 2024)

As a reminder, there are various ways of earning Avios points from UK credit cards.  Many cards also have generous sign-up bonuses!

In February 2022, Barclaycard launched two exciting new Barclaycard Avios Mastercard cards with a bonus of up to 25,000 Avios. You can apply here.

You qualify for the bonus on these cards even if you have a British Airways American Express card:

There are two official British Airways American Express cards with attractive sign-up bonuses:

You can also get generous sign-up bonuses by applying for American Express cards which earn Membership Rewards points. These points convert at 1:1 into Avios.

Run your own business?

We recommend Capital on Tap for limited companies. You earn 1 Avios per £1 which is impressive for a Visa card, along with a sign-up bonus worth 10,500 Avios.

SPECIAL OFFER: Until 12th May 2024, the Capital on Tap Business Rewards Visa card is offering a bonus of 30,000 points, convertible into 30,000 Avios. You must have a Limited Company to apply. Click here to learn more and click here to apply.

You should also consider the British Airways Accelerating Business credit card. This is open to sole traders as well as limited companies and has a 30,000 Avios sign-up bonus.

There are also generous bonuses on the two American Express Business cards, with the points converting at 1:1 into Avios. These cards are open to sole traders as well as limited companies.

Click here to read our detailed summary of all UK credit cards which earn Avios. This includes both personal and small business cards.