Travellers from the UK have had a turbulent time. The pound's taken a hammering; and Brexit means that flight compensation rules might change.
Not only that, but Brits can lose huge amounts of cash through choosing their credit card unwisely. Some banks have introduced dedicated cards to make surprise fees less likely, but many customers still get hit by what seem like hidden charges.
So, why deal with cards abroad at all?
Although having foreign currency in cash is useful in many situations (particularly in developing countries), there are advantages to keeping the bulk of foreign spending on card.
It makes customs an easier experience. It also means that, in the case of theft, the card can be cancelled and not much is lost.
In this comprehensive guide, we cover the ways that we can all get the most out of our credit cards before we go away and when we're out of the country, as well as the pitfalls to look out for.
Before going abroad:
1. Buying foreign currency
2. Pre-loading cards and alternatives
3. Travel insurance
4. Fraud security
While away:
1. Spending money
2. Withdrawing cash
3. Dynamic currency conversion
4. Getting help (from the credit card provider)
Buying foreign currency
Before going away, some people like to have some foreign currency or travellers' cheques in their pockets.
Having ready cash in the local currency isn't a bad idea for things like taxi rides and tips - but using a credit card to buy this before going away is not the best idea.
Credit card providers count these transactions as cash advances, which typically means that they're subject to a fee and a higher interest rate than purchases.
Additionally, for cash advances - in foreign or home currency - there often won't be an interest-free period to pay back the amount in full in order to avoid interest charges.
Find out more about these charges in our credit card and cash withdrawals guide.
By far the cheapest way to stock up on currency before catching a flight is to visit a competitive bureau de change (those in the airport will typically be among the least competitive, so do this in advance) and buy currency in cash or by debit card.
As of December 2012, UK debit cards do not charge a fee for purchasing foreign currency in the UK so, in this instance, they are a better option than a credit card.
Ordering foreign currency online for home delivery is also becoming more common.
Browsing currency deals online makes it easier to compare what's on offer, but it's important to make sure that the card used to buy the currency online doesn't levy any extra charges for foreign currency purchases.
Travel insurance bundles
Another thing to consider before going abroad is whether to take out a credit card that offers travel insurance.
Some bank accounts already come with travel insurance, so check if this is the case before factoring it in while picking a travel card.
Insurance policies are typically either bundled as part of a fee-charging credit card deal or offered when cardholders book trips abroad through their bank's travel service.
Travel insurance should cover most of the things that can go wrong during a trip, including:
- Trip cancellation
- Lost luggage
- Theft of possessions
- Accident or illness
Cardholders should read the key facts and policy documents carefully (it's very dull but very important) and never assume that they are covered.
Some key things to check are whether the health insurance includes the US (many travel insurance policies don't), and whether it covers any adventure activities planned for the trip.
People considering credit card travel insurance should be particularly aware of travel accident insurance and travel inconvenience insurance policies. These aren't a substitute for a comprehensive policy - for more on why this is see here.
For instance, the American Express Platinum Charge Card in the table above offers comprehensive insurance. But the Preferred Guest® Credit Card, also from American Express, only comes with travel inconvenience insurance.
Another example is the British Airways American Express Premium Plus Card - although it's a dedicated international card, it comes only with travel accident and inconvenience insurance, not a comprehensive travel insurance policy.
Finally, make sure that the insurance bundle constitutes a good deal. If another card seems attractive, check out how much travel insurance would cost as a stand-alone expense and see whether the insurance-included card still stands up as a winner.
Fraud security planning
Finally, before going away cardholders should always notify their provider to avoid the frustration and inconvenience of having their card blocked. Usually this can be done via online banking or over the phone.
Most credit card issuers now employ active fraud monitoring. So, if transactions suddenly appear from a different country, they usually block cards quickly to prevent (what appears to be) further fraudulent activity.
What are the options for paying abroad?
There are a few ways to spend cleverly when on a trip to another country.
Pre-loading cards and alternatives
Until fairly recently, some credit card providers allowed cardholders to pre-load balances onto their credit cards for use abroad.
This positive balance of cash could then be spent - or withdrawn - abroad without interest charges, as no amount was actually owed to the provider.
However, it seems all providers have now phased out the pre-load facility for travellers. In fact, we couldn't find a single credit card for use abroad that allows it.
But there are alternatives that have the same result as credit card pre-loading.
Some credit cards give customers an interest-free period or a very low interest rate on cash advances and don't charge for cash withdrawals (see our travel credit cards guide here for more on this). The Halifax Clarity credit card is a good example of this.
Therefore, provided that a direct debit is set up to pay off the card in full each month, with certain cards it is possible to withdraw money for free. Unlike the pre-load method, cardholders also don't have to predict how much they need to access in advance.
Prepaid travel cards
Although not technically a credit card, another option is to get a prepaid travel card - also known as a currency card.
These are essentially debit cards that are pre-loaded with cash to spend while out of the country, with a choice of currencies available. There's usually a minimum amount of money that can be put on the card.
Most prepaid cards are now multi-currency, meaning they can be topped up with several currencies at once. They are also location-smart, knowing which currency needs to be spent where. However, if the card doesn't accept a certain type of currency, you're likely to be charged FX fees if you use it in that country.
Prepaid cards are popular because they're safer than carrying around cash, can easily be cancelled if there is a problem and they don't allow any overspending via borrowing, for those that need help with budgeting.
That said, if topping up becomes necessary, it's good to know that a card can be refilled while abroad - so check how easy this is before committing. The best cards will have several methods, including via text and online.
Prepaid cards are also handy because there are no credit checks required, so they're favourites of young people with no credit history, or those with poor credit.
If a prepaid card isn't used for over a year, providers will often charge a small (around £2 a month) maintenance fee.
For more on prepaid travel cards take a look at this guide.
Mobile apps
Mobile only banks like Monzo offer smartphone banking apps and cheaper fees for use abroad
A newer and increasingly popular way to pay abroad is via app. Mobile technology has been harnessed by several companies to offer great deals for travellers.
Monzo, Revolut and Starling are some of the mobile-only banks offering a smartphone app linked to a credit card.
The cards are loaded up with cash. They're linked to the app, which is essentially a virtual card, and can be used to pay abroad in places that accept the technology.
Alternatively, a physical version of the prepaid card can also be ordered to use abroad. Useful for travellers going places without mobile payment infrastructure.
Travel credit cards
These work like normal credit cards. In fact, they often are normal credit cards that happen to include great travel benefits, while some cards are specifically targeted at frequent travellers.
There are several factors to consider when choosing a credit card for a trip abroad (see the next section).
It's also worth looking at whichever bank is being used for current accounts etc., as it can be easier to deal with a bank with an already-open line of communication. Plus, it can make it more likely the applicant will be accepted for a credit card.
None of the cards featured below have foreign transaction fees - so no charges for spending money abroad.
What to look for when choosing a credit card for travel
Air miles
Credit cards that offer travel rewards such as air miles can be a useful way to knock pounds off regular flights or summer holidays. For more on air miles take a look here.
However, note that reward credit cards are unlikely to be the best bet for actual trips abroad - that's because they don't tend to offer the same travel-specific features that can save money, unlike the cards we featured above.
Cashback
Many travel-focused cards offer cashback as a reward, even for overseas spending. Aqua, Barclaycard and Tandem all give cashback on spending.
Spending money abroad without fees
Most credit card companies charge a fee for converting sterling into foreign currency when the card is used abroad.
Providers usually call this the 'non-sterling transaction fee' and tend to charge about 3% of the transaction (so £3 for every £100 spent abroad).
When travel credit cards say they're 'commission free' or advertise a '0% use abroad fee', this is the fee they're talking about.
All the cards featured above have a 0% fee on foreign spending. In fact, most credit cards aimed at travellers won't charge the non-sterling transaction fee.
It's also worth noting that banks get a near perfect currency exchange rate on credit card transactions abroad. So, when a credit card provider waives the sterling transaction fee, not only is the cardholder benefiting from not having to pay the fee but also from the excellent exchange rate.
Withdrawing cash abroad
As in the UK, using a credit card to withdraw cash or buy foreign currency abroad carries higher interest rates and handling fees. In addition, there is often no interest-free period on these transactions (see below).
Debit cards - including some prepaid cards - are no better. They may not charge interest, but many have a flat fee (usually a couple of pounds) for every ATM withdrawal made abroad.
To find out which cash machines accept which cards around the world, use the following ATM locator services:
Interest on overseas spending
Check out whether the card charges interest on purchases or cash withdrawals abroad.
Most cards don't charge interest on purchases, if they're paid off in full each month. But lots of them charge interest on cash withdrawals until the amount is paid back.
Dynamic currency conversion
Dynamic currency conversion (DCC) is when an overseas credit card payment is converted to the cardholder's own currency by the retailer, rather than the currency of the country they are paying in.
While this may not sound so bad, it is far more expensive than paying in the local currency.
This is because the customer is charged a hefty 4% DCC fee by the credit card issuer to convert the transaction. They are often unaware of the fee when they make the decision.
By law, retailers should offer the customer the chance to convert their payment currency, but, as it's the retailer who pockets the 4% charge, it's in their interest to perform DCC.
Foreign currency fees charged by credit card issuers are usually around the standard 3%. So using one of the travel-focused cards we talked about is usually a good idea.
Here are some more important things to remember about DCC:
- It's always possible to refuse DCC - no matter what the retailer may say
- If the conversion has been made it's possible to ask the retailer to void the transaction and charge again using the local currency
- DCC is used in many places such as restaurants, shops and hotels, and in many countries - mostly throughout Europe, but also in the United States
Assistance abroad
Some credit cards offer emergency cash and card replacement services while abroad, so it's worth finding out about these and jotting down the phone numbers before you go.
Several credit cards also offer emergency help if the worst does happen - from providing advice and sending messages to arranging transport and finding medical and/or legal help.
For regular travellers, or those venturing further, these services could be worth looking into.
There's more on what to look out for in this guide.
Digitally savvy banks are the best bet for help abroad, as it's generally easier to get online than deal with an international phone call (especially if time zones are an issue). Banking apps often have the option to block cards via the app, and online banking can include access to overdrafts etc.
Conclusion
When going abroad, it's always worth thinking about spending.
Many an unwary traveller is caught off-guard by foreign transaction fees, ATM costs and even having their card frozen by a security-conscious bank.
While plenty of current accounts now include features designed to appeal to frequent travellers, Brits going abroad should also consider a card designed for overseas spending.
