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What is a transaction fee?
If you are travelling overseas on holiday or for a business trip, it’s good to be aware of the fees you’ll be charged if you spend with your credit or debit card while you’re away.
Using a credit card abroad
While credit cards are convenient to carry, are accepted by most retailers, and are useful to have in an emergency, they can be costly to use abroad. This is because your card charges a non-sterling transaction fee for each purchase.
This is typically an administration charge added on by your lender, and it covers the exchange rate of anything you pay for. So when you make purchases abroad, make sure that you keep track of your spending and don’t forget to factor in this fee. This way you can avoid any surprises on your balance when you get your new statement.
Similarly, if you are withdrawing cash from an ATM with your credit card while overseas, you can expect this to be pretty costly. This is because you’re charged two fees; one is a non-sterling transaction fee and the other is an ATM fee. On top of this, you will be charged interest on the cash you’ve withdrawn every day until the credit card balance is paid back in full.
Always check with your card provider over the phone or on their website before you travel, to understand the different charge rates for overseas spending.
What about if I use a debit card?
You may think that by using your debit card overseas you’ll avoid these charges. However, this is not the case as your bank can add on a non-sterling transaction fee for withdrawing cash with the card, as well as add it to any purchases you make. One advantage of using your debit card abroad is that you are not charged interest, as it is your own money you’re spending.
Avoiding transaction fees overseas
If you don’t want to take cash abroad but you’re keen to avoid the fees that come with using a credit or debit card, you can take advantage of prepaid currency cards. Prepaid cards work in exactly the same way as pay-as-you-go mobile phones or gift cards. For a small initial fee, you can load them with the cash you think you’ll spend while you’re away. You can then pay for purchases directly with the card and they give you the flexibility to withdraw cash at an ATM too.
Make sure that you understand the fees attached to the different prepaid cards as they do vary. Some cards might charge you for withdrawing cash at an ATM and also charge you every time you top up. In this case, try to budget for what you might spend on your trip before you travel and avoid going over this limit while you’re there.
Specialist travel cards
Some debit and credit cards don’t charge transaction fees as they have been designed for use abroad. You will have to shop around for these and your credit history will be taken into consideration when you apply.
Whether or not you get a special credit card like this, it’s a good idea to take your card with you when you travel in case of an emergency. This is because you are protected by the powerful Section 75, so anything you buy on your card for between £100 and £30,000 is protected by the credit card company should you need to get a refund.
If you are using your credit card or a specialist travel card, remember to make at least your monthly payments, as if you miss this your credit history will be affected. You can set up a Direct Debit to ensure you don’t incur charges or unnecessary interest.
For more helpful information on credit cards, take a look at our blog.