How to save money using credit cards abroad
By Kate Saines
The holiday season is well and truly upon us. And if you are lucky enough to be one of the millions of Brits travelling abroad this summer there's a chance you will be using your credit card whilst away.
In fact, figures from uSwitch reveal one in four Brits use their credit cards abroad. It's a great way of spending since many travellers, from a safety perspective, prefer not to carry great wads of cash with them. If a credit card is stolen, it can be easily replaced, whereas cash cannot.
What's more, benefits offered under the Consumer Credit Act 1974 mean we are covered should anything go wrong with a purchase. And our credit cards come with excellent anti-fraud safeguards.
But there are also things you need to watch out for when using your flexible friend during your overseas excursion.
Not only are there a variety of hidden charges we can incur simply by spending on our credit cards, but there are also vast differences in these costs depending on which card you use.
Here's how to get the most out of your credit card on holiday, without spending more than you need.
The lowdown on charges
According to uSwitch, whilst one in four of us will use our credit card abroad, one in ten did not understand the cost involved and how the costs vary between cards.
Stefan Maryniak, personal finance expert at uSwitch.com, said: "Fees from using your credit or debit card abroad can be the holiday souvenir from hell, but there are a number of ways to avoid them.
"If you plan ahead you'll end up with more money in your pocket."
He suggests starting to think about your holiday finances when you book the holiday. And the first thing to do, if you plan on using your credit card, is to check with the card supplier to find out their foreign usage fees.
There are three main charges you need to look out for, according to David Black, an analyst for independent financial research company Defaqto.
Dynamic currency exchange is the charge applied if you choose to pay in sterling instead of local currency.
This charge is universal and therefore applies no matter which credit card you use. However, you can avoid paying it by simply opting to make your purchase in the local currency instead of sterling.
You will probably have been asked the question plenty of times before and been unsure which currency to choose. Just remember, by choosing sterling you are allowing the retailer, hotel or restaurant to apply their own exchange rate.
Mr Black explains: "If you are going to pay by credit card, it is best to be billed in the native currency as the exchange rate given by your card provider will be more favourable than the retailer's."
Then there are Transaction fees. Check out the small print of your credit card agreement and you'll find information on this particular fee, which is a small charge applied for each transaction you use anywhere in the world.
According to Mr Black, 48 per cent of credit cards charge 2.75 per cent per transaction. Meanwhile 33 per cent charge 2.99 per cent for each payment.
He added: "Every time you buy a souvenir or rent out a sun bed with your credit card, you will have to pay another three per cent on top."
There's no avoiding this. But, by limiting the number of transactions and avoiding using your card unnecessarily – by using cash for smaller purchases – you can limit the number of times you are charged.
Also, if you own one of the 33 per cent of cards charging the higher fee it might be worth switching to one of the cards with the lower fee – more on this later.
And finally, Defaqto flags up Cash advance fees as the other main charge to watch out for. Cash advances are offered by every credit card and it means you can withdraw cash from an ATM.
The problem is, every time you withdraw money using your credit card there is a charge. Defaqto's figures show 77 per cent of credit cards charge £3 for each cash withdrawal.
However there are a small number of cards, six per cent to be precise, which have no charge for using your card in a cash machine abroad.
Mr Black added: "From our data a majority – 68 per cent – of credit cards charge an extra three per cent on top of the amount that you withdraw."
Read more: Holiday makers face millions in hidden card charges
The Best Credit Cards to use abroad
If you can find a card which offers the lower transaction fees combined with zero charges for using ATMs you will be on to the best deal.
This might not be easy, however, as within each card type there are usually very significant variations.
As always, the key to getting these purse-pleasing deals is to do your research. Stefan Maryniak of uSwitch, said: "Shop around to see if you can get a credit card with low or no travel fees."
At the moment there are several cards on the market which do not levy a foreign exchange fee in overseas purchases, withdrawal fees or a combination of the two.
According to Defaqto, the Halifax Clarity Credit Card currently charges for neither. The Metro Bank Credit Card has no foreign exchange fee and the Metro Bank Personal Credit Card does not charge withdrawal fees.
And Santander's Zero Credit Card also comes without these fees, but the card is only available to the bank's current account customers.
You can also receive both fee-free benefits on Sainsbury's Gold Credit Card. It comes with a £5 per month charge in return for other incentives such as free multi-trip family travel insurance.
The Saga Platinum Credit Card, meanwhile, offers fee-free foreign exchange on overseas purchases, but the card is only available to the over-50s.
You can also avoid foreign exchange fees on purchases using the Post Office Credit Card. And Nationwide Building Society's Gold Card is also charging nothing for foreign exchange fees until July 31st.
All four of the cards offering the benefit of fee-free withdrawals charge APRs on cash advances, except Sainsbury's Gold Credit Card which is offering interest free credit on purchases and cash advances for cardholders repaying the entire balance on time.
Use the Myfinances.co.uk comparison tables to find the best deal on a new credit card
Alternatives
If credit cards are not for you or you cannot find a deal to suit your holiday spending patterns, there are other options available. Of course debit cards are widely accepted abroad. In fact, they offer certain advantages over credit cards – not least they often have lower fees on cash withdrawals.
There are many debit cards around which do not charge a fee for purchases or ATM cash withdrawals abroad. Defaqto revealed these are available from Cumberland Building Society's Current Account, Metro Bank's Personal Current Account, Norwich and Peterborough Gold Current Account and Santander's Zero Current Account.
Remember, however, even if your card is fee free at ATMs, some ATM providers and retailers often levy their own fee.
You might also want to consider pre-paid currency cards, which are ideal if you don't want to carry cash around but want to avoid credit and debit card fees and charges altogether.
You can top them up with foreign currency, often without commission charges.
Stefan Maryniak of uSwitch said: "The best thing about currency cards is you only spend what you load on them so you are guaranteed not to overspend."
And another thing...
It's not just fee-free benefits abroad which can set a credit card apart. You are just as likely to save money by purchasing cards with other perks. Defaqto said 16 per cent of credit cards on the market offer travel accident insurance and five per cent offer lost luggage cover as a feature.
It's essential, however, whatever card you choose to inform your card provider when heading abroad and letting them know when and where you are going. This prevents them blocking your card while you are away.
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