Overseas debit and credit cards
Some people like the solid comfort of holding cold, hard cash when they’re overseas, but many people would rather not wander around with a wallet full of cash on holiday, which is why plastic cards are so popular.
Using a credit card or debit card is a convenient and easy way to pay for day trips, restaurant bills, and other holiday expenses.
However, it’s important to choose your plastic carefully to make sure you don’t end up spending a fortune on unnecessary fees.
To give you an example, most standard debit and credit cards will charge a foreign transaction fee of around 2.75% to 2.99% every time you spend on the card. This means for every £100 you spend you could be charged £2.75 to £2.99.
If you use your card to withdraw cash, you’ll pay the foreign transaction fee as well as a cash withdrawal fee of around 2.99%. So if you withdraw £100 you’re looking at paying up to £6 in total.
On top of that, if you use a credit card for your cash withdrawals while you’re away, you’ll be charged interest from the moment you receive your cash out of the machine or over the counter – even if you pay off your balance in full that month.
This means using plastic abroad can rapidly become expensive. Fortunately, however, there are a number of debit and credit cards designed specifically for overseas use that won’t charge you such extortionate fees.
Advantages of an overseas card
The main advantage of using a debit or credit card overseas is that you won’t pay foreign transaction fees every time you spend.
While many also won’t charge fees for cash withdrawals, you will still usually be charged interestfrom the date of the transaction if you use a credit card. Paying off the balance in time and in full the following month won’t make any difference.
Exchange rates on these cards are also usually competitive, and some cards offer extra incentives such as cash back or family travel insurance.
Disadvantages of an overseas card
As you might expect, there are a number of points to be aware of if you are choosing an overseas card.
For a start, many overseas credit cards do not offer interest-free deals on purchases, which means it’s important to watch what you spend on your card on holiday. If you are unable to pay off your balance in full each month you will usually be charged interest.
You will also need a good credit rating to be accepted for the best deals. If your credit rating is poor, your application is more likely to be rejected.
Be aware too that some cards charge monthly or annual fees – particularly if they offer extra travel rewards or incentives – so make sure you check carefully before you sign up.
You may decide the fee represents good value, but it’s always good to check the arithmetic.
Another thing to watch out for is dynamic currency conversion. This is where the retailer converts your payment into pounds rather than keeping it in the local currency.
Unfortunately, the exchange rates applied usually offer poor value when this happens, which means you could end up paying a lot more for your purchase than you expected.
So if you are given the option, make sure you always pay in the local currency rather than in sterling.
Finally, it’s best to avoid using your credit card to buy currency or to load money on to a prepaid card (see below) as this will be counted as a cash withdrawal and you will be charged interest immediately.
Prepaid currency cards
If you’d prefer not to use a debit or credit card on holiday, another option is to use a prepaid currency card.
With this type of card, you pre-load it with cash before you travel and then use it in the same way as a debit card. Should you need further funds when you are away, you simply top it up again – one way to do this is to transfer money over from your bank account using online banking.
Traditional prepaid cards usually allow you to load them up with either euros, US dollars or sterling, depending on your destination. If you choose sterling and use the card to spend overseas, your money will be exchanged into the local currency when you use it.
Recently, a number of cards have been launched on to the market that allow you to spend in a range of different currencies on the one card.
With digital bank Revolut, for example, you can spend for free in more than 150 currencies at the interbank exchange rate. You can exchange money for free on weekdays, providing you do not exchange more than £5,000 a month.
Alternatively, WeSwap lets you store money in ‘wallets’ in 18 different currencies. It works by allowing travellers to swap currencies directly with each other. You can save money by swapping three or seven days in advance, where fees are 1.3% or 1% respectively, or you can swap instantly and pay a 2% fee.
Advantages of a prepaid currency card
Prepaid cards can be much cheaper than using a standard credit or debit card and they are generally accepted wherever you see the Visa or Mastercard logo.
They can be a useful option if you have a poor credit rating as credit checks are not usually carried out – although there may still be an identity check. Prepaid cards can also be a good choice if you are on a budget as you can only spend what is on the card.
What’s more, because you can load up your card in advance, you have the option to do this when the exchange rate is competitive, meaning you won’t lose out if the exchange rate gets worse while you are on holiday (unless you need to top up again, of course).
Disadvantages of a prepaid currency card
Some prepaid cards still charge ATM fees or foreign transaction fees in certain situations – although these are usually much cheaper than with a standard debit or credit card.
You should also watch out for application fees, top-up fees, replacement card fees, and inactivity charges if you haven’t used your card for a number of months.
Be aware too that prepaid cards are not always accepted by car hire companies, petrol stations and hotels.
Analysis
In researching how to financially prepare for a trip abroad, I am seeing lots of conflicting advice across multiple platforms. There are so many different ways to handle money while abroad, and the best way to do it is under constant debate. The average foreign transaction fee for a credit card is 2.75-2.99%, or a 2.99% fee to withdraw from an ATM. That adds up quickly! And even if the card doesn’t have a foreign transaction fee, there’s “dynamic currency conversion” to consider, which is where the retailer doesn’t convert your purchase into US dollars, but instead charges you in their currency, leaving you to pay a higher exchange rate.
Another strategy listed is to use a prepaid currency card. You load it before you travel and then use it in the same way as a debit card, until it runs out. The average card can be loaded with different foreign currencies at any time, so you can strike when the exchange rate is low. The biggest disadvantage to these cards is their potential for fees of all shapes and sizes.
So, one big pain point in the travel and banking industry is that preparing to spend money abroad takes time, is usually not enjoyable, and is filled with fees from both ends of every transaction. There is a lot to be addressed here!
Source
Wait, R. (2023, May 22). Spending while you’re abroad – All you need to know. Forbes. https://www.forbes.com/uk/advisor/credit-cards/spending-while-youre-abroad/
