Fee-free spending abroad: These are the best options

Travelers are being warned not to fall into the trap of a prepaid travel card if they spend this summer abroad.

Britons returning from holidays abroad left a total of £582 million on cards last year, according to research from travel payment card firm Currensea.

That’s an average of £78 per prepaid card, compared to £55.20 last year – a 33 per cent increase.

James Lynn, co-founder of Currensea, says: ‘A staggering amount is wasted every year by UK travelers who persist in using expensive and clunky prepaid cards.

“Many households are focused on securing value for their money, but more than half a billion just sit unused on prepaid cards in drawers across the country.”

A prepaid travel card requires users to top up their chosen currency before they leave, but they often have worse exchange rates than other card options.

The survey shows that 14 per cent of UK travelers use prepaid cards for their holiday money – almost 7.5 million people. However, less than one in ten (9 percent) spend all their top-up money.

This money is in danger of being forgotten if travelers do not immediately exchange back to British pounds and withdraw. So what are the other options?

1. Travel Credit Card

Most credit cards charge you for making purchases or withdrawing cash abroad. However, travel credit cards usually don’t.

As long as you pay the balance in full and on time each month, they can be an ideal option for vacations.

Scott Dixon, a consumer advocate, recommends looking for a credit card that doesn’t charge you for exchanging foreign currencies or withdrawing cash and gives you a good market rate on currency exchange.

For example, Barclaycard’s Rewards Visa does not charge any fees or interest for spending and withdrawing money abroad, provided you repay in full. You also get 0.25 percent cashback on almost all expenses

Dixon likes Halifax’s Clarity credit card, which has no foreign spending fees, no annual fees, and low ATM fees.

The other advantage of using a credit card abroad is that you are also protected by section 75 of the Consumer Credit Act on purchases over £100. greater is that you will be refunded if something goes wrong.

You may be charged for ATM withdrawals, and Dixon says, “Credit cards carry higher interest rates unless you pay in full each month, although you usually get a near-perfect ‘market rate’.”

Withdrawing cash on your credit card affects your credit score as it is seen as a red flag by lenders who see it as poor money management.

“Try to avoid this whenever possible,” Dixon recommends.

2. Travel Payment Cards

These are just like a normal debit card, but do not charge a ‘non-sterling transaction fee’.

Usually you have to apply to open a new checking account to get one and then transfer money from your main bank account. Banking online allows you to transfer more money as and when you need it during the holidays.

Chase and Starling are popular options as both offer free spending and withdrawals around the world.

A Chase Mastercard also offers 1 percent cashback when spent for a year, once activated in the app. Keep in mind that Chase is app only, so you’ll need a smartphone to use it.

If you don’t want to open a new bank account, Currensea offers a travel debit card that allows people abroad to spend money directly from their current account.

It offers exchange rates from 0 percent to 0.5 percent above the base exchange rate.

The company claims that a user who spends $1500 while visiting the US would save £40 compared to using a card from a regular bank, and £50 compared to the post office’s prepaid Travel Money Card.

Never pay in pounds with a debit card abroad. Always choose the local currency and insist with the payment point that you want to pay in the local currency to get the best exchange rate given by your card provider.

3. Cash

Cash is still king when it comes to travel, with 50 percent of UK travelers using cash to pay for holidays, according to Curensea.

By using cash, you can lock in an exchange rate and also stick to a budget.

It is best to use a debit card or cash to purchase foreign currency. Paying a UK agency with a credit card counts as a cash withdrawal, so there will be fees and interest even if you pay back in full.

Scott Dixon, a consumer advocate, advises that vacationers who want to use cash abroad should never buy cash at the airport.

Instead, he said, “Compare exchange rates from all providers. Supermarkets often offer preferential rates for loyalty card holders. Kindly ask if they can offer you a more favorable rate for large amounts. If you don’t ask, you don’t get it.

Retailers will often ask nicely, in a way that suggests they’re doing you a favor by giving you the choice to pay in your home currency.

‘In reality they apply a worse exchange rate and take a discount on the card charges. There is no benefit to you to pay in your own currency,” he added.

If you have any cash left over at the end of your trip, you can usually exchange it back for British pounds or another currency when you travel elsewhere. However, currency exchangers usually do not accept coins.

4. Prepaid Cards

These are cards that you load money into – either the currency of your holiday destination, or pounds, so it uses the exchange rate when you spend.

Providers use the ‘interbank rate’ (the perfect exchange rate); the rate set by Mastercard or Visa; or one of these with a surcharge – often between 1 percent and 2.5 percent.

Therefore, a travel credit or debit card may be a better alternative to a prepaid card.

Withdrawals on prepaid cards can often result in charges or poor exchange rates. Remaining funds on travel cards can also lead to maintenance costs if the card is not used.

For example, the Post Office Travel Money Card charges users £2 per month if the card has not been used for 12 months.

Currensea says 30 per cent of UK holidaymakers mistakenly believe prepaid cards offer better exchange rates for overseas transactions, but this is often not the case.