Taking your holiday money: using debit cards

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, some pre-paid cards eliminate 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.

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