Credit cards for use abroad
Credit cards offering cheaper rates and fees for spending and withdrawing cash whilst abroad can help keep costs down when travelling. As well as including additional services and rewards.
Credit cards can be a cheaper alternative to debit cards when you spend abroad and some even offer free travel insurance, emergency assistance and rewards for travellers.
This is our comprehensive guide to the benefits, and the pitfalls, of using credit cards both before you travel and while you're away.
Before you go abroad
Even before you step on a plane, credit cards can help you to plan your trip... or trip you up.
Buying foreign currency
Falling firmly in the tripping up category is using a credit card to buy foreign currency or traveller's cheques.
While there are specialist credit cards designed for spending abroad that this doesn't apply to, the majority of credit cards do charge additional fees and interest for buying foreign money.
Credit card providers count currency purchase and traveller's cheques as a cash advance transaction which, typically, means that it will be subject to a fee, a higher interest rate than purchases and there often won't be an interest free period to pay back the amount in full to avoid interest charges.
Find out more about these charges in our credit cards and cash withdrawals guide.
By far the cheapest way to stock up on currency before catching your flight is to visit a competitive bureau de change (those in the airport will typically be among the least competitive) 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.
Ordering foreign currency online for home delivery is also becoming more common and makes it easier to compare deals but, again, make sure that the debit or prepaid card you're using to buy online doesn't levy any extra charges for foreign currency purchases.
(No longer) Pre-loading credit cards
Until fairly recently it used to be the case that some more lenient providers allowed cardholders to "pre-load" balances onto their credit cards.
This positive balance of cash could then be spent - or withdrawn - abroad without interest charges as no amount was actually owed to the provider.
It was particularly useful and most commonly used on those cards which offered fee-free cash withdrawals for example, where then both the fee and the interest could be avoided when accessing cash abroad.
It seems all providers have now phased out a 'pre-load' facility. In fact, we couldn't find a single use abroad credit card that allows it.
The line on this from most providers seems to be that pre-loading is contrary to the terms and conditions of the account.
Most credit card agreements now include a clause along the lines of the following to stop cardholders doing this:
"We may return any funds that exceed the balance owing on your account to the account from which the money was sent."
Suffice to say, pre-loading credit cards before use abroad is no longer an option.
However, there are still alternatives which ultimately have the same result as pre-loading for accessing cash.
Some credit cards give customers an interest free period on cash advances and don't charge for cash withdrawals (see our travel credit cards guide here for more on this).
Therefore, providing that they set up a direct debit to pay off the card in full each month, holders of these cards will be able to withdraw money cost free.
Unlike the pre-load method, cardholders don't have to predict how much they may need to access abroad in advance either.
Travel insurance bundles
Back on the benefits side, some credit card providers offer travel insurance for their customers.
Insurance policies are typically either bundled as part of a fee charging credit deal or offered when cardholders book their trips through the issuing bank's travel service.
But consumers will really only benefit if the deals are good value in general.
And then there's the insurance itself.
Cardholders should never assume that they're covered under a policy: read key facts and policy documents carefully.
Consumers 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.
Earning travel rewards
A quick note on travel rewards: before you leave the UK, credit cards offering travel rewards such as air miles can be a useful way to knock pounds off regular flights or summer holidays.
However, note that reward credit cards are unlikely to be particularly useful when you actually go abroad (i.e. they're not the same as the cards we'll talk about in the next section).
Fraud security planning
Finally, don't forget to always tell your credit card provider when you're heading off on holiday while you're still in the UK.
Most credit card issuers now employ active fraud monitoring and when transactions suddenly start appearing from the Philippines they're pretty good at blocking access to your money - even when you're genuinely attempting to buy some emergency sun cream.
While you're away
It's while you're away that credit cards can be most handy for your holiday spending: here's why.
Spending money abroad
Most credit card companies charge a fee for converting your Sterling into Euros, Dollars, Mongolian Tugrik (or whatever) so that you can spend or take out cash abroad.
Most providers now call this the 'non-sterling transaction fee', but you may have preciously seen it as a 'foreign transaction fee', a 'loading fee', 'foreign exchange fee', 'use abroad commission fee' or even an 'exchange rate adjustment fee'.
Whatever the name, though, most credit cards charge about 2.75% to 3% of the transaction or £2.75 and £3.00 for every £100 spent abroad.
When use abroad credit cards say they're 'commission free' or advertise a '0% use abroad fee' this is the fee they're talking about.
Withdrawing cash abroad
As in the UK, using a credit card for withdrawing cash or buying foreign currency abroad carries higher interest rates and handling fees. In addition, there is often no interest free period on these transactions.
Debit cards are often no better - they may not charge interest but many charge a flat fee of £1 - £1.50 for every ATM withdrawal made abroad.
There are credit cards available, however, that offer cheaper cash withdrawal fees and/or a standard interest free period on cash withdrawals which can keep costs down.
To find a cash machine that accepts your card you can use the following ATM locator services:
Dynamic Currency Conversion
Dynamic currency conversion or DCC is when an overseas credit card payment is converted to the cardholder's own currency (pounds sterling) by the retailer.
While this may not sound so bad, it is actually far more expensive than paying in the local currency and being charged a conversion - or foreign currency - fee by the credit card issuer.
DCC costs around 4% and is often done without the customer knowing. As it's the retailer who levies this 4% charge - it's in their interest to perform DCC.
Foreign currency fees charged by credit card issuers are usually around the standard 2.75% - just over half of a DCC charge. It is also possible to find credit cards that levy no fee on foreign currency purchases at all.
You should remember that by law retailers should allow customers to choose whether or not they wish to pay for their card purchase in the local currency or their own currency.
If you ever encounter Dynamic Currency Conversion you should remember:
- DCC is often a much more expensive fee than paying the foreign currency fee to your credit card issuer.
- DCC may be operated in many places such as eateries, shops and hotels.
- It is your right to refuse DCC - don't be swayed by retailers telling you otherwise!
If the conversion has been made you can ask the retailer to void the transaction and charge again using the local currency rather than your home currency.
Dynamic currency conversion is operated in many countries, mostly throughout Europe but also in the United States.
Some credit cards offer emergency cash and card replacement services, so these are worth finding out about and jotting down the phone numbers before you go. These things never seem important until you need them.
Some credit cards also offer emergency help if the worse does happen whilst travelling abroad, from 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.