Credit cards are one of the best ways of spending abroad. They can make foreign transactions seamless while at the same time utilising advanced protection features.
However, most credit cards charge international transaction fees, often called foreign currency transactions fees. These can add significantly to the cost of credit card spending abroad. If a card holder is a frequent overseas traveller charging a large number of foreign transactions on his or her card, it can be a good idea to avoid paying these costs through acquiring a special credit card for travelling which does not charge foreign currency transaction fees.
There are two types of these cards, standard credit cards designed for foreign travellers and prepaid foreign currency credit cards.
Standard credit cards that are marketed for frequent travellers will often have low or nonexistent foreign currency charges. In particular, some of the prestigious gold, silver, and platinum cards offer this feature. However, these cards will still have administrative costs and they will tend to have either higher annual fees or higher interest rates, and it is a good idea to calculate whether this is actually going to save money for the person on a card-by-card basis. These cards are best suited for a person who travels to a number of different countries, rather than making multiple trips to only one country.
Foreign currency prepaid credit cards are pre-loaded with a certain amount of funds denominated in a foreign currency. If purchased over the internet, these cards have some of the best exchange rates on offer. For an economically savvy traveller who believes a currency is undervalued and who knows that he or she will be travelling to that country in the future, a good exchange rate can be locked in by purchasing a card with a large balance.
Foreign currency prepaid credit cards should not have transaction fees if the card is used for transactions denominated in its host currency. However they are likely to charge such a fee if they are use for transactions denominated in any other currency, including Australian dollars.
For standard credit cards, the foreign currency transaction fees are usually calculated as a percentage of the amount that is exchanged in foreign currency on each transaction. There is also likely to be a minimum charge on each transaction, which can make a normal credit card uneconomic for small foreign currency transactions.
