Credit cards are useful instruments for those who travel abroad frequently, either on business or on holiday. They pay merchants and service providers in the local currency and charge the holder’s domestic account in dollars, exchanging currencies seamlessly for the user. Credit cards are also widely accepted, with those branded by Visa or MasterCard accepted throughout the world at more than 30 million locations. However, there are certain factors that cross-currency travellers should be aware of when paying by credit card.
The first is a charge on foreign transactions. Foreign currency transactions are often charged an extra fee because of the cost and effort associated with exchanging funds. This fee is usually set as a proportion of the transaction, so a 2% fee on a $200 credit card transaction will cost the cardholder an additional $4. There’s also often a floor, or minimum charge, so if there’s a $2.50 minimum charge then the $200 transaction would still carry a $4 fee, but a $100 transaction would be charged $2.50 rather than $2.
There are some credit cards that don’t charge these fees, and those cardholders who do a lot of travelling could save a tidy sum by looking for such a card.
Withdrawing cash using a credit card at a foreign ATM can also be expensive over time. Not only are cash advances often charged higher interest rates, but when transacted overseas, they’re also subject to the foreign currency transaction fees. There may also be a fee for using an ATM outside of the issuing bank’s network as well as one charged by the bank operating the machine.
Foreign currency bought on credit cards is sometimes treated as a cash advance, again charged at a higher rate of interest and with interest charged from the date of the transaction without benefit of an interest free grace period. This is not the case on all credit cards, so it should be confirmed with the card provider.
As an alternative to paying all these fees, it can be a good idea to look for prepaid credit cards denominated in the foreign currency, which are particularly handy for lengthy stays in one country. For those travellers who prefer to stick with their own credit cards, it may be a consolation that some of them offer travel and medical insurance for free if the tickets or hotel rooms are purchased with the card.
