Rachel Robson rounds up the best credit cards to use abroad!
I hate this time of year. The bright lights of Christmas have been extinguished, the weather's cold and miserable, and I rarely see daylight. It's simply depressing.
So I wouldn't blame anyone for trading in the dark, chilly days of January for warmer and sunnier climes overseas.
But if you are lucky enough to be jet-setting in the coming weeks, have you thought about which spending method you'll be using when you arrive at your tropical destination?
If you're planning to use a credit card on your travels, you'll need to be careful. Many credit cards come with sneaky foreign usage charges that strike the minute you use your card on foreign land. And at a time when money is tight and the sterling is falling fast, holidays are expensive enough without having to pay out extra charges.
The charges
There are three main charges you should watch out for when using your credit card overseas:
Foreign currency loading fee
Cash withdrawal charges
Dynamic currency conversion rate
So let's take a look at what they mean...
Foreign currency loading fee
Many credit card providers charge a loading fee of around 2.75% every time you use your card to purchase something overseas -- or even from a foreign website.
So let's say you're having a fabulous holiday in Italy, and decide to buy a fancy new jacket and a pair of smart leather shoes for a total of _220 (around £200 with the current conversion rate -- eek!). Using your credit card, you'll be charged an extra £5.50 for your purchase. It may not seem an awful lot, but these charges can soon stack up without you realising.
To avoid this trap, bag yourself a credit card that doesn't charge a foreign currency loading fee -- see the chart below.
Cash withdrawal charges
You'll also get charged if you withdraw money on your credit card. Usually this is around 2% to 3% of the amount withdrawn, with a minimum charge of £2 to £3. Of course, withdrawing money on your credit card is never a good idea, even in the UK. But when you're abroad, it can be a greater temptation because you're more relaxed and out to have a good time.
Don't forget though that cash advances usually come with hefty interest rates too. So take plenty of money with you to avoid having to withdraw any!
Dynamic currency conversion rate
Dynamic currency conversion (DCC) is an optional service provided by individual retailers or ATMs when you use your credit (or debit) card abroad. The process gives you the choice of either paying in sterling or the local currency. But it can cause great confusion if you're unfamiliar with how it works.
By opting to pay in sterling, the retailer will convert your payment from local currency into sterling, instead of your card provider. You may think this makes more sense because you can see exactly how much will be coming out of your bank account. But the problem is, the retailer will decide the conversion rate, and often the retailer's rate is much worse than the bank's. What's more, the rate you'll be paying may not be obvious until you've made your decision.
So in fact you're nearly always better off paying in the local currency -- particularly if you have a card with no foreign currency loading fee.
Credit cards to consider
Unfortunately very few credit cards treat their customers nicely when they're on holiday. But here's the best of what's available:
Card | Typical APR | Foreign currency loading fee | Cash withdrawal fees | Balance transfers and purchases |
|---|---|---|---|---|
| Nationwide Classic Card/Gold Card | 17.9%/15.9% | 0% | 2.5% (minimum £3) | 0% on balance transfers for 13 months (3% fee applies) and 0% on purchases for 3 months Operates positive payment hierarchy |
| Post Office Classic Card/Platinum Card | 19.9%/16.9% | 0% | 2.5% (minimum £3) | 0% balance transfers for 12 months (2.98% fee applies) and 0% on purchases for 3 months |
| Thomas Cook | 17.9% | 0% | 2.99% (minimum £2.99) | 0% balance transfers for 9 months (2.99% fee applies) and 0% purchases for 3 months only at Thomas Cook |
| Abbey Zero MasterCard | 18.9% | 0% | 0% | 0% balance transfers for 6 months (no transfer fee) and 0% of purchases for 6 months |
| Saga Platinum Card | 15.9% | 0% in Visa Europe region*. 1% everywhere else. | 2% (minimum £2) | 0% balance transfers for 6 months (2% fee applies) and 0% purchases for 6 months Operates positive payment hierarchy |
Abbey's Zero MasterCard clearly stands out due to its lack of fees. Unlike any of the other cards, there's no balance transfer fee which can be a great temptation -- but do note that the 0% balance transfer period is only six months, compared to the 13 months offered by Nationwide.
What's more, the Abbey card won't charge you for taking money out on your credit card -- a rarity indeed.
But before you get too excited, withdrawing cash on your credit card should still only be done in an emergency. Cash advances offer no interest free period so you'll pay interest on the amount withdrawn from the day of the transaction. What's more, you'll be stuck with a whopping 27.9% APR with the Abbey card.
Bonus points also go to Nationwide and Saga for operating a positive payment hierarchy. That means that your most expensive debts (with the highest interest) will be paid off first. However, Saga's card is only available if you're aged 50 or over, and it will charge you 1% if you're spending outside the Visa Europe region.
Thomas Cook's credit card looks less appealing due to its higher cash withdrawal charge and the fact that the 0% purchases offer only applies to those made at Thomas Cook. However, it also offers a scheme where you can earn Travel Pounds every time you spend on it.
For every £100 spent, you'll earn one Travel Pound. These Travel Pounds can then be used towards your next holiday with Thomas Cook -- however, you will have to use the card regularly if you want to make a decent saving.
Overall, I believe Nationwide's Classic and Platinum cards offer the best deal for travellers thanks to their low fees, 13 month balance transfer and positive payment hierarchy. But I'll leave the ultimate decision to you. Whichever credit card you pick, have a great holiday!
*Visa Europe region includes Andorra, France, Italy, Portugal, Austria, Germany, Latvia, Romania, Belgium, Gibraltar, Liechtenstein, Slovakia, Bulgaria, Greece, Lithuania, Slovenia, Cyprus, Greenland Luxembourg, Spain, Czech Republic, Hungary, Malta, Sweden, Denmark, Iceland, Netherlands, Switzerland, Estonia, Ireland, Norway, Turkey, Finland, ,Israel, Poland, United Kingdom.
Compare credit cards at Fool.co.uk
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