Credit card Guides

What is the best credit card for travelling?

Updated: Monday 5 December, 2011

By Martin Fagan

Dealing with cash abroad can be one of the pains of heading on holiday. But there are several steps you can take to make light work of it.

When travelling abroad, holidaymakers face a choice of using credit cards, debit cards or prepayment currency cards to cover their overseas spending or take money out from cash machines.

Travelling with your credit card has a wide range of benefits, but it also has a few drawbacks that you must be aware of. Then you can lie back and relax when you are away, safe in the knowledge a nasty credit card bill won’t be waiting for you when you come home.

• Cash machines
• Purchases
• Don’t pay in sterling
• Prepay cards

Cash machines

The first problem with credit cards is using a cash machine when abroad - often you can be hit by unexpected fees.

Firstly, credit card providers often charge around 2.5% for cash withdrawals.

Secondly, the interest rate on a credit card withdrawal is higher than the interest rate on purchases. And, unlike purchases, there is no interest-free period so you are paying interest from the day you withdraw the money.

For example, the Nationwide Credit Card has a standard interest rate of 15.9% but the interest rate for cash withdrawals is 27.9%. The difference between the two rates is much the same for most credit cards.

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Purchases

Using your credit card for purchases abroad has one big advantage. Purchases from £100 to £30,000 are subject to protection under Section 75 of the 1974 Consumer Credit Act.

This means if the Persian rug you buy falls apart, or you order something that never arrives, you can claim the money back from the credit card company, and not have to chase a retailer in the foreign country. It’s important to note this benefit is not generally available if you pay by debit card.

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Don’t pay in sterling

If you are offered the chance to pay in sterling abroad, or offered the chance to be charged for withdrawals in sterling, just say no.

It may seem easier or more convenient to opt for paying in sterling, but you will end up paying much more costly local exchange rates.

These Dynamic Currency Conversion rates are provided by local retailers or banks can add around 4% to the cost of your holiday shopping and you will still be charged by your credit card provider just the same.

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Prepay cards

Prepay currency cards are now replacing travellers’ cheques as a way of taking cash abroad.

Customers load money onto cards from a debit card and the balance can be spent in stores or used to withdraw cash from ATMs.

Interest rates on the cards are often higher than high street bureaux de changes’ rates but charges are generally lower than using a credit card or debit card.

However, watch out for fees on these cards, as charges are far from uniform across the market.

There is also the benefit that if the card is stolen, the thief does not have access to your current account or credit card limit and a replacement card can be sent out to you. If you are holidaying on a budget, transferring cash to a prepay card means you can spend no more than is on the card, but you can add extra funds abroad if you need to.

For further information on prepay cards and the type of fees involved when using one, read our guide.

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