A Guide to Using Your Credit Card on Holiday
What You Need to Know
- You can avoid paying transaction fees by taking out a card which doesn’t penalise holiday makers. See the ‘Get a Card Suited to Foreign Travel’ section for details.
- Avoid withdrawing cash using a credit card, as interest will start to pile up the moment the notes are in your hand. See the ‘Avoid Withdrawing Cash Using Your Credit Card’section for details.
- If you use a debit card to withdraw cash, bear in mind that making fewer, larger withdrawals will save money on ATM fees and withdrawal charges.
- If you need to take cash with you, convert your sterling using a commission fee service, such as the Post Office
- Always choose to pay in the local currency if given a choice when using your credit card, otherwise you’ll pay the retailer’s exchange rate, which is normally higher than your bank’s. See the ’Pay In the Local Currency’ section for details.
- Never let your credit card out of your sight. If you’re in a restaurant and you can’t pay at the table, go with your card to where the payment will be made. See the ‘Security Issues’ section for details.
- Pre-paid foreign exchange rate cards provide a way to pay in foreign currency at much more reasonable exchange rates then you’ll find at your average bank or bureau du change.
Everybody loves a great deal, especially when it comes to planning the perfect holiday. Many of us spend hours trawling through websites looking for ways to cut back the costs of travel and the price of hotel rooms. It can be a truly gutting experience to put all that hard work in, only to come back home, after what you thought was a perfectly budgeted hotel, to find a credit card statement loaded with extra charges.
If done correctly using a credit card can be one of the cheapest and most convenient ways to spend money whilst abroad. Here’s our top tips on how to go about it;
Get a Card Suited to Foreign Travel
Most credit card providers will charge you a transaction fee for using your credit card abroad, typically this is around 2.75%. Often this figure is not printed on statements so you should contact your card provider to find out about these fees.
However, there are many cards available that do not penalise holidaymakers for spending abroad. You should compare credit cards and apply for one with no foreign exchange rate fees. Some cards will also have no ATM fees, allowing you to save money when withdrawing cash in the local currency. You can, if you feel so inclined, go beyond merely avoiding extra fees and set yourself up for a spending spree by getting card which allows 0% interest on foreign purchases for an introductory period.
Avoid Withdrawing Cash Using Your Credit Card
As we all know, if you make purchases on a credit card, you can avoid having to pay interest by settling the balance at the end of the month. However, cash withdrawals work differently. If you withdraw cash using your credit card, interest will start to accrue from the moment the cash is in your hands. You will have to pay it regardless of whether you clear your balance or not.
Given that you could also be hit with an exchange rate fee and an ATM fee, this can make withdrawing cash using a credit card a nightmare prospect. You’ll generally be better off using a debit card. Making as large withdrawals as possible will lessen the impact of withdrawal fees, which are charged as a percentage rather than a fixed sum.
It is sensible to take some of the currency you need with you. The best way to do this is to get it in advance from a service that doesn’t charge commission, such as the Post Office.
Pay In the Local Currency
Some retailers, restaurants and bars will offer you the chance to pay in sterling when you pay on card. Always decline this option and ask to pay in the local currency. This is because, if you pay in sterling, the retailer will apply their own exchange rate which, at about 4%, will almost always be higher than your banks. This is called Dynamic Currency Conversion (CCD) and is a nice little earner for many retailers.
But what if they don’t give you the option and claim you have to pay in their home currency? Simply put, they’re breaking the law. They have to give you a choice. Unsurprisingly, many would prefer you to fall for CCD and won’t mention that you don’t have to use it. Demand to pay in their currency or simply offer cash and report them to the authorities later.
For security reasons you should always ensure these transactions occur in front of you, don’t let anybody take your card out of your sight.
These days banks are getting increasingly good at preventing fraud. So much so that, if they notice a transaction taking place overseas on your credit card, they may take immediate action and block the card, out of fear that it is a fraudulent purchase. For this reason it is advisable to tell your bank that you are going abroad or they may mistakenly block your card.
You should also take the phone numbers of your bank and your credit card protection agency with you so that you can instantly alert them in the event that your card is misplaced or stolen. Obviously, make every effort to make sure your card never leaves your sight.
When you return from holiday check your statement straightaway, looking for anything unusual. You can find more information on fighting fraud at www.financialfraudaction.org.uk
Whilst you should only take cards you intend to use it, is a good idea to take two, just in case something happens to the other one.
One advantage of using your card is that purchases are protected by the Consumer Credit Act, meaning you’ll be able to recover the cost of faulty or falsely described goods from the retailer or card provider.
If it is too late for you to apply for a more appropriate card before you travel, you can still save money using a pre-paid foreign exchange card. You can top this card up with cash, normally at a much more reasonable conversion rated than with a credit card, then use it to make purchases. You can even top it up whilst abroad over the phone or online.
Alternatively, by planning ahead you watch the pound’s performance against other currencies and buy cash for you holiday in bulk whilst prices are lowest.
By using these methods or by getting a good card you’ll save a great deal, especially compared to buying currency at the airport.
- The FCA supervise all financial bodies and you may want to refer to them if you have a dispute over your credit card
- Government advice to keep citizens safe whilst abroad.