Foreign Perspectives

Archive for the ‘Travel Money’ Category

Aren’t debit cards the same as credit cards? No, they are very different and have different characteristics when you’re trying to use them overseas which aren’t always apparent.

The first key difference is that they are directly linked to your bank account and this makes them a little more risky to take abroad (it’s much safer to take credit cards and a cash card).

Debit cards for international use come in four versions although not all are available in every country. These are Visa, Visa Electon, Mastercard and Maestro.

Cards branded Visa and Mastercard can be used where-ever the equivalent credit card can be used and, aside from the link to your bank account, are processed in the same manner as a credit card (press the “credit” button if prompted on an ATM or till).

Cards branded Visa Electron and Maestro are supposed to be electronic use only which means that you cannot use them in one of the old-style carbon copy type machines. In practical terms, almost all “civilised” countries use online terminals these days but this does not apply everywhere so it’s best to have a credit card as a backup. Maestro is a little more limited in that it can’t be used when you’re not at the point of sale therefore you can’t use it to guarantee hotel reservations. You can’t use either of these cards to hire a car.

Note that acceptance of cards is neither universal nor universally practical. If you are travelling to countries off the tourist routes you can find that cards aren’t accepted or are only accepted in widely dispersed locations. For example, in India I found that using cards simply wasn’t practical. Cards branded Visa Electon and Maestro are much less widely accepted than those branded Mastercard and Visa.

Bank charges on debit cards come in several basic forms. First, they charge transaction fees when you use the card to get cash. Typically these fees are around 2% with a minimum charge of £2/$2 per transaction therefore it’s best to withdraw amounts of £100/$100 to minimise this charge. In most cases, there is no transaction charge when you buy things using the card so it’s better to do that instead of withdrawing cash. Second, they usually apply a foreign currency charge which is typically around 3% (no minimum). And, of course, there may be an annual fee for having the card. Some card issuers charge a transaction fee on overseas purchases too: if this applies to your bank, use a credit card to make purchases instead or if you can’t do that, withdraw cash and use that for purchases.

Despite all that, it’s still usually cheaper to get cash on a card than to buy travellers cheques as your cost will typically be around 5% max compared to the 7% or so for travellers cheques.

Downsides are basically those charges but, if you’re careful, you can minimise them. For those living in the UK, a Nationwide debit card eliminates all charges and if you’re in the American military a USAA card works in much the same way as do some American issued CapitalOne cards. If your bank is a member of the Global Alliance (Bank of America, Bank of Nova Scotia, Barclays, BNP, Deutschebank and Westpac) then you can withdraw cash from one of the other member banks ATMs without the transaction charge (you still get charged the foreign exchange fee).

I’m going to work my way through the various ways you can take money abroad over the next few weeks or so in the travel money series. I’ve already covered cash, travellers cheques and credit cards and will be covering cash cards and prepaid cards in future episodes.

Everyone will tell you that credit cards are the thing to use on holiday and they are, most of the time.

The problems with credit cards are that they’re not always accepted, how you get charged depends on how you use them and you can end up with unexpected shocks when you return home and find all the charges you’ve racked up. That said, you’d be very unwise to go on holiday without one.

Credit and charge cards operate in much the same way and the only practical differences are that charge card bills are supposed to be repaid in full at the end of the month and that, usually, they don’t tell you what your credit limit is with a charge card. Don’t believe those stories of charge cards coming with no limit: there is one, it’s just that usually they don’t tell you what it is.

For holiday purposes there are really only five international-use versions that you could reasonably expect to be able to use abroad. By far the most common are Mastercard and Visa which are accepted pretty much everywhere that accepts any card. One thing to watch is that acceptance of both is not universal nor are both equally accepted in all countries: usually Visa is the best to go with if you’re only taking one but in some countries Mastercard is much more widely accepted and shops that accept one do not always accept the other.

Next up is American Express which is widely accepted in America, Canada and the United Kingdom. Outside those three you would be very unwise to try to use it as your only card. The one big advantage it has is that you can get the card replaced if it’s stolen abroad although you may need to trek quite a bit to find the nearest American Express office where they can do that for you.

Finally there are Diners’ Club and JCB. On the whole, it’s not worth considering Diners Club as the acceptance rate is just far too low. JCB is widely accepted in places where you find Japanese tourists but you’d be better going with Mastercard or Visa as anywhere that accepts JCB will accept them too.

Discover isn’t accepted outside North America. Also worth noting is that cards issued in America or by an American owned bank anywhere are not accepted in Cuba or Vietnam. This obviously includes MBNA (owned by Bank of America) who issue a wide range of affinity cards from their various subsidiaries around the world: check your card agreement to see who is really behind it as it doesn’t always say on the card.

Note that acceptance of cards is neither universal nor universally practical. If you are travelling to countries off the tourist routes you can find that cards aren’t accepted or are only accepted in widely dispersed locations. For example, in India I found that using cards simply wasn’t practical and one family that stayed with us found extreme difficulty in using their American Express card in France (the only card they’d brought) as it’s accepted by less than 10% of the banks and few hotels. The easiest way to check coverage is to look at the Visa or Mastercard sites.

Where these cards really come into their own is in booking hotels and renting cars. You usually can’t guarantee a hotel reservation without having a credit card and you can’t rent a car without one either. Outside of those they can be amongst the cheapest means of getting foreign currency available to you. I say “can be” because you need to know how the banks charge you for using them first.

Bank charges on credit cards come in several basic forms. First, there is the interest that they charge on the credit; if you pay your balance in full each month the majority of cards don’t charge any interest. Some very low rate cards charge from the time of purchase even if you pay in full so check if your rate seems unusually low. Second, they charge transaction fees when you use the card to get cash and will usually charge interest from the date of withdrawal. Typically these fees are around 2% with a minimum charge of £2/$2 per transaction therefore it’s best to withdraw amounts of £100/$100 to minimise this charge. In most cases, there is no transaction charge when you buy things using the card so it’s better to do that instead of withdrawing cash. Thirdly, they usually apply a foreign currency charge which is typically around 3% (no minimum). And, of course, there may be an annual fee for having the card.

Despite all that, it’s still usually cheaper to get cash on a card than to buy travellers cheques as your cost will typically be around 5% max compared to the 7% or so for travellers cheques.

Downsides are basically those charges but, if you’re careful, you can minimise them. For those living in the UK, a Nationwide credit card eliminates all but the cash withdrawal charges and if you’re in the American military a USAA card works in much the same way and CapitalOne in America also issues cards with no foreign exchange charge.

This is part of a little series on travel money which has already covered taking cash and will be covering debit cards, cash cards, prepaid cards and what to do when (and it will be when) your cards are stolen.

Whilst most people will tell you that cards are the way to go, there’s something to be said for having some cash with you too.

As far as cash goes, it’s sometimes handy to take around $100 in US dollars or perhaps 100€ in euro as both currencies are accepted in a lot of places outside their home country. Don’t take anything larger than a 20 as you will, of course, receive change in the local currency and may not to be stuck with lots of it.

If you’re going to a country which doesn’t use those currencies the best one depends on where you’re going eg US$ are more useful in South America than Euro, but in many former European colonies in Africa the reverse applies.

What about the local currency? If you’re going to a civilised country, it’s usually best to wait ’til you get there and withdraw it from an ATM in the airport. In most other cases you can find that you either can’t get it or there are severe limitations on how much you can get. For example, when I went to India the maximum you were allowed to take in local currency was £5 ($10) which simply wasn’t worth bothering about.

The cost to you is around 7% for amounts of around the $100/€100 if neither are the currency in your own country (don’t believe those “no commission” signs: the actual charge even in those places is around 7%). If you’re going to a fairly civilised country, it’s best to wait ’til you get there as it’s almost always cheaper to withdraw cash in local currency from an ATM than it is to get foreign currency abroad.

If you’ve some foreign currency left over at the end of your trip many places these days advertise that they’ll buy it back off you commission free. That does NOT mean that they won’t be charging you and in fact it usually costs around 3% to 5% to do this. Therefore, if you’re intending to go back to the same country the following year, just keep the cash and definitely do that if you’ve picked up the $100/100€ that we recommended earlier.

Downsides? well, travel insurance rarely covers cash so if it’s stolen, it’s gone. Also, if the country you’re going to doesn’t use the currency you’ve taken then you can pay considerable amounts in commission and other charges to change your money into the local currency. Worth noting is that not all banks offer foreign exchange services.

I’m going to work my way through the various ways you can take money abroad over the next week or so in this series on travel money which’ll cover travellers cheques (travelers checks), credit/charge cards, debit cards, cash cards and prepaid cards.

Prepaid cards seem to be breeding like rabbits around the world and every single one is different from the others in terms of charges, features and general useability.

Rather than trawl through all the cards that would pay me to recommend them to you as the majority of card comparison sites do, I’m just going to go through those that are “best” here and tell you why that they’re the best so that you’ll be able to choose which is best for your circumstances.

At the moment there are basically three types of card available:

1. Maestro cards;
2. Visa Electron cards; and
3. Mastercard debit cards.

All of the Maestro cards seem to charge you for the card and a number of them charge you an annual fee too for a card which is very limited in functionality. Therefore, it isn’t worth considering these any further.

At the moment there seem to be only two Visa Electron cards available aimed at the holiday market which is a shame as it’s a very useable card. The Post Office card is free to get, £5 to renew and costs £1.50 per UK withdrawal, £2 overseas; if you get the Euro or Dollar cards their “0% commission” works out at around 3.5% otherwise it’s 2.75% when you use, say, the dollar card in Europe. There’s a 1.5% charge to add money to the sterling card. The LloydsTSB costs £7.50, £5 to renew and costs £1.50 per withdrawal with a 2.75% currency exchange fee when used abroad; on the Euro or Dollar cards their “0% commission” should work out at a similar charge to the Post Office card (they don’t offer a sterling card). That £7.50 initial charge (waived if you have a LloydsTSB Silver account) and much wider availability means that the Post Office card will be best for most people.

The range of Mastercard debit cards is vast. The majority of these cards have a monthly or annual fee which makes those ones very expensive which is a shame as this is the most useful of the three types of prepaid card currently available. However, the FairFX card is free if you load £500 or more onto either their Euro or dollar cards or alternately via this link for £10 upwards (it’s £9.95 for a three year card otherwise) and costs £1/€1.50/$2 to withdraw cash (there’s no transaction charge for purchases). The card is renewed free if you top it up at least twice over the three year validity of the card, otherwise it’s £6/€9/$12. The ICE card is free to issue from £100/€100/$100, £1.75/€3/$3 to withdraw cash and charges 4% for all currency conversions. It’s renewed free if your balance on the card is at least £50 when renewal time comes up otherwise it’s £3/€5/$5. They charge £1.75 per purchase transaction when you use the sterling card in the UK but the euro/dollar cards are free to use for purchases everywhere and the sterling card is free to use everywhere except the UK for purchases. Purely on the published charges this makes the FairFX card the one to go for but it’s even better than that as they only charge about 1% for currency exchange.

So, which of all of these cards should you get?

1. The very clear winner is the FairFX card which is free to issue via this link, £1 per cash withdrawal and about 1% to convert the money to euros/dollars. If you load your card at least twice every three years (the topup when you get the card to begin with counts), renewals are free otherwise they’ll charge you £6. Topups are via debit card or bank transfer; in theory you can topup via credit card but FairFX charge you 1.5% to do this and you could get hit by cash advance fees from your bank too if you do this.
2. In second place comes the ICE card which is free to issue and renewed free if you have at least £50 on the card at renewal time, £1.75 per cash withdrawal and 4% to convert the money to euros/dollars. You can top-up online by credit/debit card or in their branches with cash, cheque or credit/debit card.
3. In third place comes the Post Office card because it’s free to issue, £5 every two years to renew, £2 per cash withdrawal and about 3.5% to convert the money to euros/dollars. You can top-up the card with cash or credit/debit card in a Post Office branch or by phone or online with a credit/debit card. The big plus point of this one is that you can get it immediately from a Post Office branch so if you’re looking for a last minute card before you head off on holiday, this is the one to go for although do bear in mind that the card needs to be activated before use ie you can’t get one in the Post Office in the aiport, get on the plane and use it immediately in the resort.

What would I get myself? The FairFX card in that the charges are so low. This is a truly exellent card and if you remember to topup twice every three years it’ll not cost you anything to operate. I’d also consider the Post Office card in that it’s useful to have both Visa and Mastercards as not everywhere takes both and you could come unstuck if you only took one.

For true emergency use the Post Office card comes into its own as you could get someone to get one for you in the Post Office and post/courrier it to you whilst you were on holiday.

You should consider these cards only as backup to your normal credit/debit cards. For use abroad, the best bet remains the Nationwide Building Society‘s Flexaccount (Visa debit or Cirrus) which has no charges at all for withdrawing cash or converting from sterling to any currency. Alternatives to this are Abbey’s Zero Card (Visa or Mastercard) which appears to be even better than the Nationwide offer. Other credit cards with no foreign exchange fee include Thomas Cook (Mastercard), the Post Office (Mastercard) which charge nothing where-ever you are and Saga which charges nothing in Europe and 1% outside. Finally there’s the Egg Money card (Mastercard) which charges 2.75% for currency conversion but has no transaction charges for cash withdrawals and pays a quite respectable rate of interest when the account is in credit; it’s an excellent choice if you like to budget your holiday spending as you can use it like a savings account.

I find that very few people give any thought to how they should take their money when they go on holiday beyond saying they’d like $200 or whatever to the travel agent and thereby getting ripped off. So, to help you decide, here’s a little guide:

The first thing to do is to check what currency is used at your destination. If it’s a mainstream currency such as dollars or euros then it’s best to take the money in that form. However, if you’re going off to less mainstream countries, check which of the principal currencies is most commonly used there (if in doubt, take dollars). Sometimes you can’t get the currency used outside the country or can’t get sensible amounts of it so you need to take dollars or euros eg India used to only allow you to import £5 of their currency which wasn’t really worthwhile getting.

What about taking cash? Well, if you’re in America then it’s always worthwhile to take, say, $100 with you (nothing larger than a $20 bill) and likewise for those living in euro-land. However, if that’s not the currency of the country you’re going to, it’s going to be expensive to convert to the local currency. The other option is to buy some of the local currency before you go but beware that this is usually quite expensive and not as cheap as you would think from the advertisements eg when I bought $150 for about £100 in a shop advertising that the commission was £3.50, the actual charge was over £10 ie 10%. The other main downside of cash is that if it’s stolen, it’s gone as holiday insurance rarely covers cash to any significant amount so if you are taking it, limit the amount to $100 or so. If you buy foreign currency on a card, it counts as a cash advance with all the charges that implies.

Travellers cheques (or travelers checks) are much better than cash in that they can be replaced fairly easily if stolen (keep a note of the numbers, date bought and where you bought them). However, they are equally expensive to purchase and there is often a charge to cash them too. If you’re going to America or Canada you can use dollar cheques as though they were cash in shops (even where they say “no checks accepted”). Again, take them in the currency of the country you’re going to if it’s a mainstream one, otherwise dollars or euros. If you have any left over after your holiday, keep them rather than cash them in your bank as you can use them later (there is no expiry date) and this will save you paying the commission again. If you buy travellers cheques on a card, it counts as a cash advance with all the charges that implies. Make sure that your travellers cheques come with the Visa or Mastercard or American Express brands as others may not be accepted. You can’t use American Express travellers cheques in Cuba or Vietnam nor any issued by American banks.

Credit/Charge cards are used nearly everywhere these days. If you don’t have a card already, you should get one (Visa or Mastercard) even if you only plan to use it for emergencies. Bear in mind that not everywhere accepts them though and also that not all places take both Visa and Mastercard. If pushed, you can get cash on these cards either in an ATM or over the counter in a bank but save this for emergencies only as you’ll get charged a cash advance fee, currency conversion fee and interest. The exchange rate used is much better than you’ll get for either cash or travellers cheques so that $150 that I got would have cost me around £2.75 vs the £10 that I was charged had I used the card in a shop, around £7 had I used it to get cash (assuming I’d paid the full balance when I returned home). In those countries which don’t have ATMs, you can usually still use the card to buy things and get cash over the counter in banks. I say usually because it isn’t always the case eg in India we couldn’t use the card in shops and the banks weren’t practical either.

Credit/Charge cards come in four basic international-use versions. Visa/Mastercard are the most accepted worldwide but note that in some countries one may be more accepted than the other and in particular don’t rely on shops accepting both cards so, if you can, take both types. American Express is the next most accepted but it is widely accepted only in countries that are “American/British” influenced; the one principle advantage it has is that it can be replaced by any American Express office although note that these are not very widespread and may be difficult to get to. One thing to avoid is their Travellers Check Card: best to get one of their proper cards if you can, but only if it’s free in your country. Diners Club is very far behind Amex in acceptance worldwide and not worth paying for. You cannot use cards issued by American banks in Cuba or Vietnam which notably includes MBNA (owned by Bank of America). Discover isn’t accepted outside America. JCB acceptance is patchy: good where Japanese tourists are common, poor otherwise.

Debit cards are almost always branded Visa/Electron/Plus or Mastercard/Maestro/Cirrus and work in the corresponding systems however sometimes you may be issued with a card which can only be used in your own country: check that one of the Visa/Electron/Plus or Mastercard/Maestro/Cirrus symbols are on your card as if they aren’t you probably can’t use the card internationally. Charges are as per credit cards except that you don’t get charged interest on cash advances.

Cash cards are often limited to the country in which they are issued but if they have a Plus or Cirrus symbol on them, you can use them abroad too (this was to have changed in 2008 with the introduction of the Single European Payment Area ie all European cards should be useable in all European countries, but hasn’t [as of 2010]). Charges are usually the same as for debit cards in ATMs. The principle advantage of having a cash card is that they are a lot less attractive for thieves as they can’t be used without the PIN.

Prepaid cards are becoming increasingly popular with travel agents, mainly because they see it as a way of getting even more commission than they can on travellers cheques. Whilst buying these from a travel agent is usually just a way to pay them even more commission, there are some very good ones around which will save you a lot. See our detailed article for more on these. For example, had I got my $150 on a card, the cost would have been close to zero if I had used the pretty much perfect FairFX card.

As well as the above options you also have a choice of providers of the various methods of payment. Travellers cheques may be offered “commission free” by your bank (and the UK Post Office), although note that this is not the same as “free” eg my $150 would have cost around £7 “commission free” (vs £10 with commission).

In the UK, the Nationwide Building Society offer a totally free debit card (ie no transaction fees, no ATM fees, no currency conversion fees) [sadly withdrawn from November 2010] so my $150 would have cost nothing; their credit card is almost as good in that it’s free for purchases but is a bit expensive for cash advances. Most UK cheque accounts come with a debit card with Maestro or Visa Debit facilities. For a UK cash card you seem to be limited to Royal Bank of Scotlands Instant Savings account and the Coventry Building Society’s cash cards (both Plus system).

In America you can get quite a range of systems listed on the card eg NYCE, Star, etc. but in reality the only two that matter are Plus and Cirrus for cash, Visa and Mastercard/Maestro for debit/credit card use as none of the others are accepted internationally. The costs for international use are rarely clearly laid out on American card agreements and smaller banks may not even know how much you’ll be charged for using your card abroad.

If you use one of the banks within the Global Alliance banks (BNPParibas, Bank of Nova Scotia, Bank of America, Barclays, Deutsche Bank and Westpac) you can use machines from one of the other Global Alliance banks without transaction charges (currency conversion fees still apply).

This article is part of our series on holiday planning which covers things like how to book your holiday, how to take your holiday money, what to pack, etc.

[updated October 2010]

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