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What is the Best Plastic to have in your Wallet when Abroad?
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Which card should I use on holiday?
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It’s happened to all of us at some time or another. Having spent money on a holiday, you return home nicely bronzed only to find you’ve been stung with charges for simply using your cards abroad.
With summer fast approaching, it’s time to sort out which card is best for you to avoid those post-holiday blues.
0% fees on foreign transactions with the Post Office
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An introduction to the types of cards you should consider
With most providers offering adequate security should your card be lost or stolen, the main thing you should be looking for is a card that reduces your additional fees. The following is a shortlist of the three main card types that can help ease your spending abroad.
1. Credit Card
Taking your credit card abroad with you is easy and, depending on your bill date, you won’t have to address your holiday spending until the next month. But be warned - getting caught short whilst abroad may make you more likely to take cash out with your credit card, which is best avoided unless you’re prepared to deal with the heavy fees attached by most providers.
Advantages:
- A minority of credit cards won’t hit you with a foreign exchange loading fee while on your travels, namely the Abbey Zero, Post Office (www.postoffice.co.uk) and Nationwide cards. Abbey goes one step further as the Zero card also doesn’t charge you a fee for withdrawing cash from a foreign cash point.
- Thanks to ‘Section 75’ consumer protection, if something goes wrong with your purchases (costing over £100), legally the card provider is jointly liable with the retailer, meaning you can complain to them and get a direct refund. Needless to say, this is much easier than tracking down the original shop on your return.
Disadvantages:
- Beyond the usual charges applied to withdrawing cash using a credit card, taking money from a foreign machine will typically sting you with an additional £2 charge or 2% of the amount, depending on which is greater.
- You’ll start to pay interest from the moment you withdraw cash at a higher than usual rate.
Find out more about credit card charges abroad
2. Debit Card
Given the extra charges generally added to credit cards abroad, the debit card may seem like the most obvious solution but things aren’t as clear cut as they may initially appear. So while this type of card can be the best for your holiday, it will only be if you’re aware of the stipulations.
Advantages:
- Generally a cheaper option than withdrawing cash with a credit card, allowing you to take out cash mainly without the levies.
- Although not exempt from the loading fees and extra charges found on other card types, with certain cards such as the Nationwide Flexaccount card you can use your card effectively as you would in the UK.
Disadvantages:
- Not all providers offer free withdrawals. Most providers will charge you each and every time you spend on your debit card. Among the main culprits are RBS, NatWest, Halifax and Lloyds TSB, with the latter adding a £1 charge to every transaction. Halifax goes further, applying a fee of £1.50, which all adds up at the end of your holiday.
3. Pre-paid Card
Not the most obvious choice, but has some genuine advantages directly related to foreign travel. A leading example would be the Post Office Travel Money Card (www.postoffice.co.uk).
Advantages:
- A pre-paid card is one of the safest ways of taking your money abroad. You load money onto it, meaning that if it’s stolen your bank account is safe.
- With the Post Office Travel Money Card, if it’s lost or stolen you can request a replacement 24 hours a day, seven days a week, therefore limiting a disruption that could ruin a holiday.
Disadvantages:
- Pre-paid cards also incur the same 2.75% fee to use abroad in addition to a 1.5% commission for loading GBP onto the card (although this is 0% for EUR and USD). As the minimum initial load is £50, you will be charged a mere 75p but if you went for the maximum amount of £5000 this would soar to £75.
- With the TMC, the emergency replacement service has a charge up to £35.
Read more about pre-pay credit cards.
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Other points to consider when choosing a card
It’s important to remember that all cards can face charges that may be hidden on your statement. Most banks will levy a loading fee on all foreign currency transactions, usually 2.75%.
All card types are liable to face a ‘dynamic currency conversion’ on purchases, meaning that some retailers will apply their own conversion rate when turning their native currency into GBP. This is often hidden and generally offers a poor exchange rate - certainly something to be aware of when spending on all cards abroad.
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Case studies of which cards are more suitable for different users
Due to the 2.75% loading fee put on by some providers for all foreign currency transactions, you will face an extra 2% if you do so with a credit card. In practice, with these types of credit card you would be charged 4.75%, or £23.75 if you withdraw £500 from a foreign cash machine. Comparatively, if you used a Post Office Credit Card , you would be charged £13.75 on the same amount because of the 0% commission charge on purchases made abroad.
You can avoid this high rate by using a card from Nationwide, which only charges 1.5% for using a credit card to draw cash. Even better, the Abbey Zero credit card charges 0%, making it a much more attractive than your standard card.
With a Nationwide debit card you can use foreign cash machines for free, meaning that if you withdrew £100 on five separate occasions, you would save £23.75 compared to using a Barclays debit card instead. This is an important difference and certainly worth keeping in mind if you want to cut your unnecessary expenses when abroad.
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Our Recommendations
Although getting a pre-paid card can make sense if you are worried about losing your card, we believe it’s best to take advantage of the Nationwide Flex account debit card, simply because it doesn’t bombard you with the extra charges that other providers stick on.
However due to ‘Section 75’ protection, it may be wiser to stick with a credit card. With this in mind, we recommend the Post Office Credit Card (www.postoffice.co.uk), as it offers 0% commission on purchases overseas. It also has a relatively low APR of 15.9% compared with 25.9% APR with the Abbey Zero card. With no charges on spending abroad this card truly limits the impact that can hit your finances while on holiday, and shows that a credit card can beat a debit card at its own game.
Find out more about the Post Office Credit Card.
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