What you should know before you go…
Spending money abroad can be costlier than you think if you’re not prepared for the fees and ‘hidden’ charges. Whether you choose to take a debit or credit card, it pays to check the small print in your terms and conditions before you go.
You could save a considerable amount in added interest and charges, potentially including:
- An extra fee added to the currency exchange rate, known as a non-sterling transaction fee – this can be as much as 3% of each transaction.
- Fees for withdrawing cash from ATMs abroad – although many people are aware of this fee when using a credit card, some banks also charge a cash withdrawal fee for debit cards.
- Credit card companies can charge interest on cash withdrawn abroad, even if the balance is repaid in full at the end of the month.
- Certain debit card providers charge a fee for shopping with their debit card abroad, so if there is no alternative, it can be cheaper to withdraw cash instead.
With that in mind, here are a few tips on using credit and debit cards abroad, so you can save money and maximise your holiday spend.
Specialist credit and debit cards for overseas use only
Rather than taking your ‘regular’ credit or debit card on holiday, look for specialist cards designed to be used abroad, as these are intended to reduce the cost of holiday spending. If you find one that’s suitable and your application is successful, however, just make sure you pay off the balance in full every month.
The interest rates on these cards are extremely high if you don’t, which could wipe out any savings you’ve made. The best overseas credit cards generally offer much better exchange rates than local retailers. So if you use a credit card and you’re asked which currency you want pay in, choose the local currency as it’s likely to save you money – more on Dynamic Currency Conversion below.
Credit cards for holiday spending are generally easier to obtain than debit cards
If your current bank doesn’t offer a specialist debit card for use abroad, you may have to switch your bank account to obtain one. Alternatively, you could just open a new account with the provider, but this might seem a little unnecessary when there is an easier alternative in credit cards.
Be careful when you apply for a new card though – your credit file is adversely affected when applications are refused. The Money Saving Expert website offers an ‘eligibility calculator’ to give you an idea of your chances of acceptance, and help you narrow down the choices.
Credit cards offer consumer protection
When you buy a product or service between £100 and £30,000 using your credit card, you’re automatically entitled to consumer protection. Under Section 75 legislation, your credit card provider accepts equal responsibility with the retailer for the item(s) purchased, making it easier to obtain a refund if necessary – an important consideration when you’ve bought the item abroad.
Debit cards can be better if you’re going to withdraw mainly cash
Although taking a dedicated credit card for use abroad has many benefits, if you intend to withdraw mainly cash, a specialist debit card will probably be cheaper overall as there are usually no added charges or fees for this.
Be careful about card ‘cloning’
When you use a card abroad, or anywhere in fact, be aware of the danger of cloning. This can happen when the card is taken out of your sight, or even when it’s right in front of you if you aren’t taking notice.
When a card is cloned the person taking payment swipes it through a small device that looks like a pager – because this device is so small, it could be attached to a belt or placed in their pocket.
It’s easy, therefore, to steal the information on the card’s magnetic strip. Your details are then imprinted onto a brand new card, or overwritten onto a card that’s already been stolen.
Dynamic Currency Conversion (DCC)
Some retailers abroad will offer to convert your purchase into sterling when you pay by card, so you can see exactly how much you’ve spent. This process is called dynamic currency conversion, or cardholder preferred currency. The problem is that you’ll probably lose out on the exchange rate by paying this way.
Local retailers choose whether or not to offer this service, and in some cases may automatically convert your purchase to sterling without asking you. It’s a good idea, therefore, to check whether DCC has been used prior to signing a payment slip or entering your PIN.
Avoiding the non-sterling transaction fee
Although your bank uses the MasterCard, Visa and Amex optimum exchange rates, the charge for conversion adds a non-sterling transaction fee of up to 3% to your bill when you use a non-specialist card abroad.
Finding the best card may take a little research, but your time and effort will be repaid via the extra holiday treats you’ll be able to enjoy.
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