Whether you booked your trip months ago and are eagerly awaiting your sun-filled week away, or you’re considering packing-up but aren’t sure whether or not you can comfortably afford it, ensuring you’re aware of how much you’ll spend on purchases and making cash withdrawals abroad will make a sizeable difference to your holiday finances.
As such, in today’s post, we’ll explore the additional payment charges you could face abroad, and offer a number of budgeting tips to help ensure you spend your hard-earned and well-saved money on the things that matter, instead of on avoidable transaction charges.
What are the charges?
- Foreign transaction fee – When making a purchase on a credit card – whether that’s in a restaurant, bar or shop – you will pay a foreign transaction fee (also known as an exchange rate fee). This is typically 3% and is the same amount charged to debit cards, otherwise known as a ‘load fee’
- Debit card fees – Where debit and credit cards differ is the additional fee (on top of the standard 3% load fee) that you incur if using a debit card. With each purchase made on a debit card, the bank will add an additional fee (usually 50p – £1.50). As such, it’s important to check whether your debit card charges – if so, avoid using where possible
- Cash withdrawal charges – These types of charges apply to both debit and credit cards. Typically, when you chose to withdraw cash in a foreign country, you can expect to pay an additional 2.5% of the amount you withdraw or a standard minimum charge of £3 per withdrawal transaction. This means that if you’re going on a big family holiday for 2 weeks and choose to withdraw £2,000 in one go, you’ll be spending at least £50 on fees, and even more if you opt for a few, smaller withdrawals
- Unexpected interest rates – This one only applies to the use of credit cards. Usually, after you fully pay back a credit card balance each month, you won’t pay interest – however, in the instance that you choose to withdraw cash, you do. Remember that even if you pay the balance back in full the following month, you will still be charged daily interest fees. Generally speaking, in the UK we don’t withdraw money from ATMs with a credit card, but on holiday we’re a lot more likely to do. As such, ensuring you’re using your credit card correctly if you decide to take it away with you on holiday
What’s the best way to pay?
As the golden rule, spending directly on specialist overseas travel cards is the cheapest and most cost-effective way to pay when on holiday. However, if your flight happens to be in an hour and you don’t have time to sort this method of payment out, there are a number of other ways you can pay when abroad. Below, we’re detailing four ways to pay, including the benefits and drawbacks of each.
- Cash – As the number one rule, you should never withdraw cash using a credit card. If avoidable, you should try not to use your debit card for ATM withdrawals abroad or buy currency at the airport before you fly in order to avoid poor exchange rates. Either way, ensure you compare online rates to discover the best deals.
- Credit card – Credit card withdrawals will charge you both the non-sterling transaction fee and an additional bank fee, plus interest on the amount you borrow even if you pay the amount back in full immediately. What’s more, even with specialist travel credit cards that don’t charge cash withdrawal fees, they will usually still charge interest on the amount you withdraw. There are special travel credit cards intended to be used overseas and these types of cards will often waive the 3% non-sterling exchange fee so long as the amount you pay is made through the local currency.
- Debit card – Not only are you more likely to be approved for a debit card, but one of their biggest advantages is that some types of debit cards will allow free foreign cash withdrawals abroad. However, it’s important to remember that the majority of debit cards charge a 3% load fee per transaction, plus an additional charge when you withdraw money from an ATM. In short, try not to use debit cards while you’re away unless you have a special type of product that guarantees to avoid such charges.
- Specialist overseas travel cards – By far the best option of the four, prepaid currency travel cards are the most sustainable option and will help you with your financial planning both before you go away and while you’re soaking up the sun. With these types of cards, you simply load it with your holiday spends before you go away and use it exactly how you would a debit card, but without incurring additional ATM or bank fees. However, be aware that some retailers won’t accept them, as well as insurance car hire firms, so be sure there’s a cash machine available close by should you need to pay for an item that can’t be paid for using a card reader.
How to beat the fees?
Before you jet off, consult a holiday spending money calculator to work out exactly how much you think you’ll need while you’re away – not forgetting to check the average price of food and drink in your chosen destination to help you more-accurately figure out the cost of your stay while you’re away.
Using a combination of prepaid travel cards, specialist credit cards and cash (that you’ve brought with you from the UK) is certainly the most favourable option to ensure you beat the fees on holiday. Additionally, if you choose to use a specialist credit card on your travels, you can rest assured that any purchases you make between £100 and £30,00 will be protected under Section 75 of the Consumer Credit Act.
Taking care of your holiday finance before you fly may seem like a burden, however proper planning will ensure the budget you’ve saved towards the holiday of a lifetime isn’t wasted and put to good use for the things that matter – having fun with your loved ones!