How to find the best travel credit cards to use abroad
TRAVEL credit cards can help save you money when you're abroad - we explain how to find the best rates.
The best travel credit cards work by not charging fees when converting foreign currency into pound sterling, here is how to find them.
What is a travel credit card?
Regular credit or debit cards often have hefty charges for spending abroad such as non-sterling transaction fees which can be around 3%.
There may also be fees for withdrawals and spending.
Instead, a travel credit card is designed to make it cheaper to spend money when you are overseas such as on holiday or for business trips.
They don't usually charge a fee for international spending or cash withdrawals and may offer low exchange rates so can be a better way to buy your poolside beers, burgers and cocktails.
How does a travel credit card work?
Similar to a standard credit card, a travel credit card will give you a limit that you can spend based on your credit report and income details that you provided during the application.
You can use the card for your holiday spending and often avoid transaction charges, with only the exchange rate to pay.
It works like a normal credit card so as long as you clear the balance each month there will be no interest to pay.
If you miss a payment or only pay the minimum amount then a hefty annual percentage rate of up to 20% could be charged and it could affect your credit rating.
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How much does it cost to use a credit card abroad?
It can be tempting and more convenient to just stick everything on plastic when you are abroad as you don't have to worry about getting foreign currency.
But a standard credit or debit card may usually charge fees of around 3% for use abroad.
That means a £100 purchase would cost you £103.
Similarly, there may also be fees to withdraw cash abroad on top of the foreign usage fee.
Most credit card providers also credit card providers also charge interest on cash withdrawals, even if you repay your bill in full each month.
Is it worth getting a travel credit card?
A travel credit card can be a great way to spend money abroad without worrying about extra fees.
You also benefit from protection under Section 75 of the Consumer Credit Act, which lets you claim money back from your credit card provider if a company you have purchased an item such as clothing or tickets from has failed to supply adequate goods or services.
The best travel credit cards have no fees for spending or cash withdrawals.
You must repay the bill in full each month though or you will be charged interest like with any credit card.
Interest, or the annual percentage rate (APR), on your credit card bill can be as much as 20% or more if you fail to settle your monthly bill.
Should I withdraw cash using a travel credit card?
Many of the top travel cards won't charge you to withdraw cash.
However, even the best credit card to use abroad could still charge interest on withdrawals.
Credit card providers treat cash withdrawals differently to spending.
Even if you settle your bill in full, most providers will still charge interest if you have withdrawn cash during this month.
The interest charge could be 20% or more on top of any ATM fees.
This means a £100 cash withdrawal with a 20% APR abroad could cost £2 in interest.
It could be more if there are fees to make withdrawals and if you fail to make the monthly repayments in full.
Is it better to pay in sterling or local currency?
Holidaymakers are often given the choice between paying in pounds or euros when using a debit or credit card abroad, either for withdrawing cash or in shops and restaurants.
It may be easier to understand the price of something when it is in pounds, however you could end up paying more.
When you choose to pay in euros your bank or credit card company work out the currency conversion for you.
This is usually based on the wholesale rate set by Mastercard, Visa or Amex.
If you opt to pay in pounds then this calculation, known as the dynamic currency exchange, is left up to the foreign bank, shop or restaurant's bank and is typically worse than the bank or credit card rate.
Is it better to use a debit card?
Most debit cards have hefty fees of around 3% for overseas spending and withdrawals.
These can include a non-sterling transaction fee as well as a charge just for usage.
The European Union has banned debit card fees on spending in euros but you may still be charged in most countries outside of Europe.
It is worth checking your provider's charges as some debit cards will allow international spending and withdrawals in certain parts of the world and some may even pay cashback.
Should I use a travel credit card when shopping on foreign websites?
The same rules for overseas spending apply when shopping on foreign websites.
You may be charged a non-sterling transaction and a spending fee when using a debit or credit card.
This is because a purchase from a website in a different country is classed as an overseas transaction even if you are sitting at home.
It may be worth finding the best travel credit card for your needs instead, but don't forget to repay the bill at the end of the month or you will be charged interest.
