Here’s what you must know about using a credit card overseas

TransferWise content team
23.11.18
7 minute read

Traveling abroad? Your credit card can be a convenient solution when making purchases on the fly. It’s easy, fast and more secure than carrying a stash of foreign currency you don't quite have your head around. However, if you are not careful, you can soon rack up a lot of unwanted charges.

Here you'll get the nitty-gritty on international credit card fees, how you can avoid abusive currency conversions and trim down the costs. Then, you can decide if it's worth using your credit card abroad, or if you’re better off with an alternative such as the TransferWise multi-currency card that offers zero transaction fees.

Can you use credit cards abroad?

You can use most credit cards overseas when shopping, dining out and more. Of course, this is assuming the store or place accepts your card. Basically, when you're abroad, you can use your credit card as you would in your own country. Even the contactless option will work if available.

You can also use your credit card to withdraw cash in most ATMs overseas. Although, make sure to keep your eye out for foreign transaction fees and currency conversion markups.

Depending on your location, cash may still be a primary form of money in many rural areas - especially if you’re traveling to an exotic destination. Even if you have a credit card, it is important to keep foreign cash on hand for small expenses and emergencies.

What are the costs of using a credit card overseas?

To get a precise idea of the costs of using your credit card abroad, you should first check if it’s provided by Mastercard, Visa, American Express or another provider. Although it could be issued by a bank, it, in turn, relies on companies such as those to process payments.

Before you travel, be sure to take a closer look at the fees your specific credit card provider may charge. All you need to do is visit their website or call the number on the back of your card and reach out to a live agent to find out more.

Foreign transaction fees

Basically, the main costs of using a credit card abroad are related to non-sterling transaction fees, cash withdrawal fees, currency conversion markups and interest charges.

  • Non-sterling transaction fees. You credit card will work with any foreign currency. However, when you make a purchase, your bank needs to convert it into pounds. The costs for performing this task are supposedly covered by a non-sterling transaction fee, which is usually between 2-3% of each purchase.

  • Cash withdrawal fees. Using a foreign ATM can equally be expensive. On top of the non-sterling transaction fee, you may also be charged a cash fee when withdrawing money. It commonly ranges between 2-5% or a minimum charge of £3 for each transaction. Keep in mind that the ATM provider may apply additional charges for their services as well.

  • Exchange rate markups. You can also be subject to an unfair exchange rate when your credit card company converts foreign currency into pounds. Most providers take the mid-market rate and apply a margin on top without telling you about it. In other words, you have no idea how much they are overcharging you by.

  • Interest charges. credit card companies can charge you very high interest if you don't pay back your statement in full. Your best approach to minimizing additional costs is to fully pay off your bill every month to avoid colossal interest rates.

Paying with a credit card when traveling

Paying with your credit card in another country can seem straightforward before you factor in the charges. Let’s look at an example.

Let's say you pay a €200 hotel bill with an exchange rate of 1.1231 pounds to euro. This would cost you £178.07 before any fees, but that's not the real cost you’ll get if you pay with your UK credit card. In an hypothetical scenario, If you add up a 3% non-sterling transaction fee of £5.34, the total cost comes up to £183.41.

Using credit cards to withdraw cash overseas

If you're abroad and need some extra cash, you can use an ATM and make a withdrawal with your credit card. However, this should only be done as a last resort since the costs are are usually not worth it. In some cases, there may be two or three additional fees.

Suppose you withdraw €200 from a foreign ATM at the exchange rate of 1.1231 pounds to euro. In addition to the 3% non-sterling transaction fee, you could be charged an additional 3% cash fee, costing you a total of £10.68 in charges. Your final hypothetical total cost is now £188.75. Plus, the cash machine owner may apply other charges.

Is it better to pay or withdraw money in local currency?

Whether you're paying or withdrawing money abroad, the ATMs and credit card machines might offer you the option to use pounds rather than the local currency. This is called Dynamic Currency Conversion (DDC).

This may make understanding foreign currencies easier, but has a major drawback: you'll probably be charged a higher exchange rate by the firm handling the transaction. That's why it's better to use the local currency when offered a choice.

Paying for a holiday on your credit card

When you use your credit card to pay for your holiday, you may find a surcharge at the checkout. It may seem like another unnecessary charge, but it actually provides protection by the Consumer Credit Act, so it's something worth considering.

If the cost of your purchase ranges between £100 and £30,000, the Consumer Credit Act holds both the credit card provider and the retailer liable for refunding you when something goes wrong.

Some other perks your credit card company may award you include cash back percentages, bonuses or points. Keep in mind, to avoid interest charges, you should pay off all of your credit card bills in full every month.

So, is it worthy using a credit card when traveling?

Using your credit card to pay for expenses abroad is convenient. However, there are also downsides. To help you decide, here are some of the advantages and disadvantages of using credit cards overseas.

Pros:

  • Credit cards are more convenient and easier to use than cash. They replace carrying large amounts of cash and the tedious task of manual currency conversion.
  • In some cases, credit cards come with fraud protection provided by the bank or retailers.
  • If your credit card is stolen, you can immediately report it to the bank which will deactivate the card. This helps prevent theft.
  • When using a credit card, you can earn bonuses, cash back percentages or points from your credit card provider.
  • Credit cards provide insurance on many purchases such as expired consumer goods, travel delays, and lost luggage.

Cons:

  • Credit cards usually carry overseas costs such as non-sterling transaction fees, withdrawal fees, and exchange rate markups.
  • When paying for your vacation with a credit card you may be charged surcharges.
  • You can easily overspend. If you don't keep an eye on your daily expense statement, you may often go overboard and exceed your spending budget.
  • Some banks set daily spending limits which, if ignored, can put you in unwanted situations.
  • Some credit cards require ID confirmation. This means you will need to constantly carry your passport wherever you go.

Consider your other options

If you decide against using your credit card abroad, you can use a variety of other alternatives instead. You could use cash, debit cards, prepaid cards, travelers’ cheques or a combination of those. Compare your travel money options to found out what would be the best way to spend money abroad for you.

In some cases, you may be better off getting a multi-currency card. For example, with a TransferWise borderless card you have no transaction fees and low exchange rates. It’s free to pay with any currency you hold in your account and to withdraw up to £200 per month.

Tips for when your travelling with a credit card

Obviously, you may not feel like worrying about money during your holiday. However, a few simple precautions can ensure a smooth trip and prevent unwanted surprises when you arrive back home.

  • Before you go on holiday, it’s best to inform your credit card provider about your trip to avoid complications. Let your bank know about the countries you will be visiting. You can phone a representative, log into your online account or visit the nearest branch office.
  • You should always have some form of backup funds or alternatives to your credit card. These will come in handy if you are having trouble with your credit card. While traveling abroad, it is handy to carry more than one card. If one does not work, it is also beneficial to have another as a backup.
  • In the case your card gets stolen or misplaced, you should immediately call your bank and inform them. This way, they can cancel the card and prevent unwanted theft.
  • Overspending can become an issue when you're traveling abroad. If you are overly relaxed with your spending, you can accidentally overcome your budget, causing your credit card bill to skyrocket. Be sure to keep a close eye on your spending through income statements or other services your credit card provider may provide.
  • Lastly, some banks and credit card providers cap your daily transaction on specific cards. To avoid the chance of embarrassment, you should check your credit cards daily limit. If you think your credit card daily limit is too low, you can have it increased by contacting your bank through their website, phone, or email.

In conclusion, a credit card may be a handy solution when traveling abroad. Just be sure to explore all your options and educate yourself about international fees and more.

This publication is provided for general information purposes only and is not intended to cover every aspect of the topics with which it deals. It is not intended to amount to advice on which you should rely. You must obtain professional or specialist advice before taking, or refraining from, any action on the basis of the content in this publication. The information in this publication does not constitute legal, tax or other professional advice from TransferWise Limited or its affiliates. Prior results do not guarantee a similar outcome. We make no representations, warranties or guarantees, whether express or implied, that the content in the publication is accurate, complete or up to date.

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