Until relatively recently, the majority of people who holidayed abroad took travellers cheques or the local currency with them. But carrying a substantial amount of cash can be risky, particularly in countries where petty theft and pickpocketing are rife. And travellers cheques, while safer, can be difficult to exchange for cash or to settle bills when you are holidaying away from the main tourist centres. Using your credit card abroad offers a safer and more convenient way of paying hotel and restaurant bills as well as other spending. No wonder, then, that the majority of payments made by British travellers overseas are now made by plastic.
But using your credit card abroad can be expensive. Banks and other issuers will charge you more than once every time you use your credit card overseas and if you withdraw cash with them, the fees you’ll end up paying can be exorbitant.
What will I pay?
If you use your credit card sensibly at home, it can be a great way of borrowing without paying any interest while at the same time earning cashback or Air Miles and other loyalty incentives. Regularly paying your bill off in full each month will ensure that you can borrow interest free for 30 days and continue to maintain a great credit record.
But taking your card on holiday will not be the same pain-free experience: you’ll pay charges that you’ll never face at home and you won’t know about many of them until you open your card statement a month later.
Many credit card providers levy a range of fees for using them abroad including:
- A foreign exchange fee. When you use a card – either a debit or a credit card – abroad you may find your bank or credit card provider levying a fee on each transaction. This varies by provider but averages around 2.75 per cent of each transaction total.
- Withdrawing money from an ATM. This is expensive in the UK but becomes more so when you do it abroad using a credit card. It may mean that you’ll always have access to local currency but your card provider may charge you as much as 4 per cent in fees for every cash withdrawal you make.
- If you’re going away for a few weeks and only have the minimum repayment set up on your credit card, then you may be charged interest in what you spend abroad.
Things to avoid
If you do have to use your credit card abroad, then you can save yourself as much as possible in fees by limiting your use of it to paying for goods and services only. Don’t use it to withdraw money from ATMs so if you think you will need foreign currency when you’re away, it is better to order some of this before you travel.
Don’t rack up multiple foreign exchange fees by making lots of small payments – try to limit the use of the card to larger payments. Even though these transactions are all subject to foreign exchange fees, the interest rate tends to be lower the more you spend in a single transaction.
Get a new credit card
Some providers tailor new card offers specifically for holidaymakers. Some of these waive foreign exchange fees for a certain period of time while others won’t charge you for using an ATM overseas. But these offers will only last for a limited amount of time so make sure you read the small print before applying for one of these cards.
Paying in local currency or sterling
When you travel abroad and use your card to buy something, settle a bill or take cash out of an ATM, you may be given the option of making the payment in either sterling or the local currency. Sterling payments in this way are done using something called dynamic currency conversion.
You may be tempted to ask for the conversion so that you know how much it is going to cost you at home but this is usually a mistake. You will find that this kind of currency conversion comes at a disadvantageous exchange rate which will cost you more.
When you are asked to pay a bill overseas – at a hotel, in a restaurant or just in a shop – always make sure that you’re being charged in the local currency before authorising the payment. There is no obligation on you to pay in sterling.
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