Whether it’s just a couple of weeks relaxing in the sun, or the next leg of your around the world adventure, exploring and discovering a new country is an experience like no other. Whilst there are often many free or low-cost activities to enjoy when travelling abroad, to make the most of your trip, you’ll ultimately have to part with some of your hard earned savings to indulge in some of your destination’s top experiences, cuisines, and delicacies.
When it comes to budgeting and preparing financially for your trip abroad, there’s plenty you’ll have to think about. It doesn’t matter whether you’re a super planner or one who revels in the last minute, there are a few unavoidable considerations, both before and during your trip, surrounding payments. These include foreign transaction fees, foreign exchange rates, and ATM fees.
The good news is that taking just a short amount of time to understand when and where various payment methods are either your friend or foe, can end up saving you a lot of money. Whether it’s a credit card, cash or an alternative payment method, you’ll want to arm yourself with the knowledge to avoid unnecessary costs during your trip, so you have more money to spend on the things you love.
Credit Cards Abroad – The True Cost
Credit cards are a popular payment method for both travellers and frequent holidaymakers alike. Whether it’s for increased buyer protection, to rack up benefits like cashback offers or air miles, or to simply improve cash flow, credit cards can be a great tool for paying abroad.
However, before heading off mindlessly to rack up your air miles, it’s important to consider when and where you decide to use your credit card, as the associated fees can begin to stack up really quickly. There are 3 types of fees associated with using credit cards, and combined, these can add up to an additional 10% on your purchase!
First up is the foreign transaction fee, which many credit card operators charge as a percentage (often 3%), every time you make a purchase with your credit card whilst abroad.
Your banking provider will also normally charge an FX exchange fee (typically 0.25-5%) for paying in a foreign currency. Whilst the network providers Mastercard and Visa both provide modest exchange rates, many credit card providers add their own additional markup on top of that. Finally, depending on where you’re travelling, merchants may also add their own surcharge (average 3%), to cover their own processing costs for accepting a credit card transaction.
If you’re travelling within the UK/EU you can discount this last charge, as it’s prohibited by law in these regions to charge the consumer for using a credit card. Regardless, it’s easy to see how using a credit card abroad can become a very expensive practice, and in many cases, offset the benefits you’re receiving that motivated you to use the card in the first place.
Not all Cards are Created Equal
Whilst all these costs are something to be wary of, there are cards specifically targeted toward travellers, whose aim is to offer low or sometimes even zero foreign transaction fees, and equally impressive FX rates.
For example, there are a number of AMEX cards available to US residents that do not charge an international transaction fee. They do however, typically add a larger foreign exchange markup, which can result in you losing anywhere from 3-5%. For UK readers, there are more competitive offerings from major banks such as Barclaycard and Halifax, that offer credit cards with no international transaction fees, as well as no foreign exchange markup.
Depending on the country you’re visiting or the type of purchase you’re making, credit cards certainly do deserve a place in your range of payment options, but you’ll want to do your research and have a card that offers benefits most appropriately suited to your lifestyle.
When Cash is King, Don’t End Up the Jester
Despite a growing acceptance of card payments worldwide, boosted further by the COVID pandemic, there will undoubtedly still be times when holidaymakers or travellers will need to use cash when paying abroad.
One of the first things to consider is whether to pick up your cash in your home country or wait until you arrive at your destination. In many instances, it can often work out cheapest to withdraw your cash from a local ATM once you arrive at your destination. Things to bear in mind if you’re going to be relying on an ATM withdrawal are where the nearest zero or low withdrawal fee ATMs are located, and what days and times these are in operation.
Check if your card provider charges foreign ATM withdrawal fees. Again, whilst the majority do, it’s possible to find solutions that do not.
Are Bank Transfers Worth it?
Depending on the type of purchase, bank transfers can be a serious way to keep costs down and make your money go further for you whilst abroad. For smaller purchases that require immediate payment, you’re best sticking to cash or card. However, for larger purchases that you’re planning ahead of time, such as multi-day excursions or longer trips, it’s definitely worth weighing up your options before reaching straight for your credit card.
Whilst the devil is often in the details, generally speaking, using bank transfers as a payment method for your travels can help you avoid both the foreign transaction fee charged by a credit card supplier, as well as the merchant fee for processing the credit card transaction, leaving only the FX markup. In some instances this can save you a serious amount of money on larger purchases such as safaris or cruises.
One thing to be aware of when considering bank transfer as a payment method, is to ensure the provider you’re booking with is trustworthy. Depending on what country you’re a resident of, credit card providers have a number of payment protection means in place, should you get scammed or not receive a service you were promised.
The Bottom Line
The last thing you want when venturing abroad is for money troubles to damper your experience. Your best bet to avoid this, is ensuring you have several means of payment for your trip, including an international debit card, credit card and an appropriate amount of cash.
Most importantly, this ensures you’re not ever left in a situation where you can’t pay for or make an intended purchase, but also presents a fantastic opportunity to keep costs down for your trip. Choosing the smartest payment method available can help avoid unnecessary charges and fees, leaving you with more money in the travel pot for your next big trip.
