Using Your Credit Card Abroad - Everything You Need To Know
If you're planning to travel holiday or for business, you may well be considering the best way to pay when you're there and the pros and cons of using a credit card abroad.
Credit cards are widely accepted in most countries but can cost you a lot in fees. Credit cards offer protection on your holiday and are still cheaper than other ways of paying. Getting a travel credit card can save a lot of money when you are abroad.
Before you set off, make sure you keep reading to avoid getting into a sticky spot when you're traveling, important things to know and top tips for using your credit card in other countries.
Should you use a credit card abroad?
The main question that often comes up is whether you should use a credit card abroad when you do travel. You have probably heard a lot of conflicting opinions - some saying it's the best way to spend money in foreign countries and others saying that it's crazy expensive.
Credit cards are cheaper than other ways of spending abroad
When comparing credit cards to other ways you can spend money abroad, credit cards are generally cheaper almost every time.
In fact, even a regular credit card that does not have any special travel benefits will often work out cheaper than the other options.
I cover the individual options in detail further down in this article, but in general, converting cash and traveler's cheques will cost more and debit cards will usually come in at about the same cost.
A special travel credit card can save you money when you travel - see the dedicated section below for how to choose on.
Credit cards offer protection against fraud
Fraud protection that you are used to at home applies to using your credit card abroad.
Because credit cards are legally set up differently to debit cards, the credit card company has a greater liability against fraudulent transactions.
This means that if your card is stolen, your card details are cloned or an unscrupulous shop scams you when you make a purchase, you will be able to claim for fraud easily with your credit card provider.
In these cases, you will usually get a credit for the fraud either immediately or in a short space of time which is useful when you're abroad. Make sure you keep receipts just in case.
Section 75 protection on holidays
Another huge benefit in using credit cards for travel-related spending is Section 75 protection. Although this will not apply to general spending in restaurants and shops, if you've booked your holiday, hotel stay or car hire using a credit card, you are protected by Section 75.
This protection means that if the company you used to book your holiday goes insolvent, the car hire company doesn't hold up their side of the deal or your hotel booking is not honoured, you can get a refund from your credit card company even if you can't from the company you paid for the service.
With holidays often being a big expenditure, this protection can be worth a lot but remember that the protection only applies to things that cost between £100 and £30,000 per item and you have to use your credit card for at least part of the purchase.
If you buy flights for two people at £90 each, Section 75 will not apply, but a week-long hotel booking where the total for each room is over £100 (or equivalent) will be covered.
Cost of using your credit card when you travel
If you're not careful, spending abroad can quickly rack up a variety of fees and charges on your credit card. If you're doing regular purchases, look out for the Foreign Exchange Fee and the Exchange Rate that your credit card uses - these can be found in the Summary Box and your Terms & Conditions.
If you have to use your credit card at a cash machine (which is incidentally a very bad idea), you will add a Cash Withdrawal Fee, high daily interest on the withdrawal and often local ATM fees on top.
Here is a summary of the key charges you may incur if you use your credit card abroad.
|Foreign Exchange Fee||Added on every purchase made in a currency other than British Pounds|
Typically 2.99% with no minimum amount.
|Foreign Cash Withdrawal Fee||Some companies have one cash withdrawal fee that covers the UK and abroad while others call it a separate fee - charged for withdrawing cash from an ATM.|
Typically about 3% with a minimum of £3.
|Local ATM fees||Don't make the mistake of thinking this is the same as the above. Many banks and cash machines abroad will charge a local ATM fee for withdrawing cash.|
Check carefully but can be as high as 3% to 5% of the amount.
|Exchange Rate and Load||Most use on-the-day Mastercard or Visa exchange rates which are generally very good. Some will use their own which will be higher with the margin being an effective fee. Some will use the official exchange rate, but add a "Load" which is essentially the same thing under a different name.|
Either zero or a buffer of up to 5%.
|Interest||Whether paying with your card or withdrawing cash, standard rates of interest will apply which will be the same as if you do the same transactions in the UK. If you pay in full, purchases will be interest free just like they are in the UK.|
Choosing the right credit card for using abroad
If you want to save money when you're paying for things abroad, a special travel credit card can often be a good idea. There isn't a huge choice and new travel credit cards don't come about often.
The Halifax Clarity card has been very popular for this very reason for many years now and is still available to new customers - the card will not charge any Foreign Exchange Fees and the Cash Withdrawal Fee is zero. But remember that cash will still charge daily interest at a rate up to 27.95% which can turn out fairly expensive.
Barclaycard Rewards and Santander Zero offer pretty much the same benefits for using your card overseas except the cash interest rate on Santander Zero is lower at 18.9% (based on the Representative APR).
Debit cards offered by challenger banks can be good alternatives - check the section about alternatives below.
Important things to know about using a credit card when you travel
If you plan on using your credit card as the main way to pay for things when you travel, there's a few important things you have to know that you might not expect.
- Your card transactions can get rejected in shops, restaurants and card machines due to local network issues that cannot process foreign cards and nothing to do with your bank. This happens more than you might think so make sure you have a backup option and carry a small amount of cash.
- Your credit card provider can block transactions and your card if they detect unusual spending patterns - this can and does happen a lot when you travel and often at the worst possible moment so once again make sure you have some form of payment backup.
- Many places will not take credit cards - some restaurants, hotels and tourist attractions may only accept cash in some countries and if you're getting a taxi from the airport, make sure you have something other than your credit card to pay with.
- Make sure you sign the signature strip before you travel! Some countries still use a lot of signature-based credit card processing rather than chip and pin and they will look at you funny if you try to sign the back of the card in front of them!
Alternatives to using a credit card on your travels
Although credit cards are a good way of paying for things abroad, especially if you've got one that doesn't charge any foreign exchange fees, there are some alternatives that are worth knowing about.
Some of the below are often used, but are very expensive, even compared to using regular credit cards abroad but others might be better for you.
Challenger bank debit cards
Some of the biggest challenger banks have had features which make their cards free to use abroad part of the product since launch.
Aiming to attract a younger customer base, banks like Monzo and Starling let you use your cards abroad absolutely for free with no fees.
As these are debit cards linked to current accounts, these challenger banks have a big advantage over credit cards in you being able to withdraw cash from ATMs abroad and not have to pay fees OR high daily interest charges.
Make sure you check the details before you apply - Monzo limit your cash withdrawals to the equivalent of £200 over a 30-day period after which you'll have to pay a 3% fee while Starling don't have a cap in place.
However debit cards lose against credit cards when it comes to protection - credit cards offer Section 75 protection on large purchases which debit cards do not and credit cards technically have better fraud protection.
Having said that, the gap has narrowed in recent years and many banks are quick to refund money in fraud cases.
Prepaid travel cards
Although these sound like a good idea, they are generally not as good as either a challenger bank debit card or a credit card.
The concept is simple - you open an account and load some money onto it and you can then use that money by paying with your card everywhere you go.
These prepaid cards will often offer no foreign exchange fees and look like a good deal, but they do have to make money and the way they do it is through other kinds of fees.
Usually there will be a fee for loading money onto the prepaid card, an annual/monthly fee and sometimes usage fees too.
These cards are basically similar to debit cards, except they have far less features and are much more expensive to use.
The one big benefit of these cards is that you can have a low amount of money on the card and if your card is stolen or you are a victim of fraud, there is a limit on how much money can be taken.
Exchanging cash into the local currency
This old school way of paying for things when abroad is still surprisingly popular, especially with older generations.
Before you jet off, you walk over to your favourite currency exchange and hand over a wad of British Pounds to receive an amount of Euros, Dollars or whatever it is that you need back.
You then bring these with you on your holiday and use local currency with no charges.
There are two big problems with this approach:
Firstly, it is incredibly expensive.
Many people don't even realise how expensive this method is in the UK. UK currency exchanges often have margins of 20% or even higher in either direction!
You may be bought in by the currency exchanges advertising that they don't charge commission, but just because you're not paying commission, doesn't mean you are getting a good deal.
It's easy to see how expensive it is - look at the two different exchange rates they provide for a currency - one will be the price at which they sell currency and the other is the one they buy it at.
Take the difference between the two rates, divide this difference by 2 and then see how that number compares to the overall rate - in the UK it is almost always a very high percentage.
This is essentially the fee you are losing every time you exchange and when you come back and change the money you haven't spent back, you're losing it again!
Even if you stick a regular credit card into a cash machine when you land and withdraw money, you will pay much less in total! (And you really shouldn't stick credit cards into cash machines either.)
Lastly, carrying hundreds or thousands of pounds' worth of money around with you when you travel is really not a great idea. The risk of losing it and the impact on your holiday is just not worth it, especially given what I said above about the cost.
These used to be super popular and a relatively secure way of using money abroad compared to cash. You go to a local American Express or other provider and hand over cash at the counter. In exchange you get cheques which you can then convert into money at your destination or in some cases use as a form of payment.
Today this is a very poor way of paying for things abroad. You lose money on exchange rates like you do with cash and you often have to pay some fees on top of this too.
You also have to waste your time and money to actually go to the offices of these companies to do the exchanges too which is a colossal waste of time given that debit cards and credit cards have become so much better over time.
Tips for using your credit card abroad
Here's a few handy tips for those looking to use their credit card abroad. Make sure you know what to expect and have a great time when you do travel!
- It can be a good idea to notify your credit card company that you are planning to travel. Give them a ring and they will often ask the dates you will travel and the countries you are going to/through. Make sure you tell them if you're going to be stopping over somewhere, even if it's just in an airport. They will update your account to relax restrictions and prevent your card being blocked. Some credit card providers will tell you they don't need to be notified when you call, but it's worth checking.
- Always choose to pay in local currency when using your credit card abroad. Often payment machines will ask if you want to pay in Pounds Sterling (GBP) or the local currency. The exchange rate provided by the machine will usually be pretty bad and you will always overpay a lot if you don't go for local currency. Sometimes shopkeepers try to be helpful to you and select the pounds option for you before handing the machine over - make sure you double check!
- Although Chip and Pin exists in many countries around the world, be prepared that your credit card may not work on the local system. If you try it once and the transaction doesn't go through, use the old signature method instead and it should go through.
- If you do choose to withdraw cash from your credit card when you're abroad despite the cost, it's a good idea to plan ahead and withdraw larger amounts rather than frequently taking out small withdrawals. Cash withdrawal fees will charge a minimum of £3 for every transaction so if you get $10 out of a cash machine, that fee will be almost 50% of the amount you got out! If you're able to log onto your credit card's online account, doing so within the day and repaying the balance in full can save you a lot of interest as cash withdrawals will charge interest daily. Even if the transaction is still showing as pending, it has been authorised so you can pay back into the credit card - make sure you account for the fee when paying in.
- In some countries you will be asked for ID when paying with a credit card in shops. This is something that may surprise you as it doesn't happen in the UK, but this is common in some parts of the world and your driving licence will usually be OK as proof of identity.