Most of us depend on our plastic cards when we go on holiday and many of us regard them just as important as holiday essentials like passports and sunscreen.

APACS, the trade association for payments, estimates that people travelling abroad from the UK will collectively rack up as much as £600m in charges on credit and debit cards this year.

The charges are accumulated as most card companies charge 2.75% for converting foreign currency to sterling, and you don't know the exchange rate in advance.

Withdrawing money from a foreign cashpoint is even more expensive, with a cash handling fee of up to 2.5%, often with a minimum of £2.50, on top of the currency conversion fee. So withdrawing £200 worth of local cash could cost £10.50.

In addition something known as "dynamic currency conversion" contributes to these costs. When paying for good overseas consumers might be asked by the retailer if they'd rather pay their card bill in sterling. If they say "yes", they will pay at a local exchange rate rather than that on their lender's card which is usually less competitive - and so end up being ripped off with a higher rate.

All lenders apply these charges, although the levels vary.

The Nationwide credit card is best for using aboard because it has no conversion fee when used abroad, however it does charge 2% (minimum £2) for cash withdrawals.

Alternatively Cahoot has a lower cash advance APR of 11.8 but levies a 2.25% currency loading fee.

However, there is some good news for holidaymakers following a recent Court of Appeal ruling. Credit card companies must now compensate borrowers who suffer losses after buying goods or services abroad on their card if they are unable to claim redress from the seller. The rule applies to anything bought between the value of £100 and £30,000. Previously section 75 of the Consumer Credit Act only applied to purchases made in the UK.

Article added: 19/06/06