Travel Credit Cards

Travel credit cards explained

What is a travel credit card?

Travel credit cards can be a relatively cheap form of spending when you’re abroad as they don’t charge any fees (or minimal fees) for foreign transactions.

This is in contrast to most standard credit cards and debit cards which can charge hefty non-sterling transaction fees for spending outside the UK.

Some travel cards also offer other perks, such as cashback, reward points or air miles, when you spend.

How do travel credit cards work?

1. Spend with your travel credit card in the same way as any other credit card. You can use it to pay for hotels, restaurants and holiday gifts, for example, when you’re travelling abroad or when you want to purchase from foreign websites.

2. Your card provider (Visa, Mastercard or American Express) will convert the foreign currency to pounds at its standard exchange rate. Specialist travel cards don’t typically charge any additional fees for this.

3. If your credit card offers these perks, you may earn rewards (such as air miles) or cashback on your spending. Depending on the provider, you may receive the rewards after a certain period, such as one month or year.

4. Unless your card comes with a 0% interest period, interest will be charged on your credit card balance. You won’t pay any interest if you pay off your card in full each month (or before the end of the 0% interest period, if applicable).

5. If you can’t clear your card balance, it’s crucial to make at least the minimum payment each month (and stay within the agreed credit limit) to avoid any penalty charges.

What are some potential fees to consider when using a travel credit card abroad?

While the best credit cards for travelling may not apply any additional charges for spending overseas, it’s worth checking the small print for any limits or restrictions.

For example, many credit cards charge a sizeable fee if you use them to withdraw cash. Furthermore, interest is often charged from the time of the withdrawal, instead of at the end of the month like on standard purchases, so interest charges could quickly pile up even if you pay off your balance every month.

There are some travel cards that won’t charge a fee for cash withdrawals, but it’s still worth doublechecking if the ATM itself charges a fee.

Should you choose pounds or local currency when paying abroad?

When you use your travel credit card, you may be asked whether you want to pay in pounds or the local currency. Wherever you are in the world, it’s generally cheaper to pay in the local currency rather than pounds.

So, if you’re in a country that uses the euro, and you’re asked whether you’d prefer to complete the transaction in pounds or euros, it’s usually better to pick euros.

Paying in the local currency means you will pay at the exchange rate set by your card provider whereas, if you pay in pounds, the bank behind the retailer or restaurant, for example, does the calculation (known as dynamic currency conversion).

The exchange rate of your card provider will usually be more competitive than the one used by the merchant, so paying in the local currency is likely to be cheaper than paying in sterling.

Do I need a credit check for a travel credit card?

When you apply for a travel credit card, the provider will need to run a hard credit check. This is because travel credit cards are a form of borrowing, just like any other credit card.

Providers will assess your credit file and run affordability checks to decide whether to approve your application for a travel credit card and, if successful, what interest rate to offer you.

Because hard credit checks appear on your credit history and too many checks in a short space of time could affect your score, you should only apply for a card if you’re confident of approval.

How much can travel credit cards save you?

Specialist travel credit cards will often be one of the most cost-effective ways to spend abroad as they don’t charge foreign transaction fees. By contrast, most standard credit cards charge an additional surcharge, which is typically around 2% to 3%, when spending in foreign currency.

The table below indicates how much €500 could cost you, depending on your payment method.

This is based on a number of assumptions and is for illustration purposes only. Actual costs will depend on the current exchange rate and your individual method of payment.

Even though the extra costs may not seem like much, they can quickly add up if you regularly use a standard credit card overseas.

What should you consider when using a travel credit card abroad?

When you use a travel credit card for your overseas spending, it’s worth thinking about:

• any fees, including transaction fees, currency conversion fees and charges for cash withdrawals
• any cashback or reward schemes on offer
• the exchange rate
• whether you pay in the local currency or sterling
• your credit limit, and any other terms of the credit card.

As with any credit card, you need to consider the amount of debt you build up on a travel credit card and make sure you don’t spend more than you can afford. If you don’t clear your balance in full before interest charges apply, a credit card could be an expensive way to spend when abroad.

See our chart above to compare travel credit cards and their features to help you find the right card for your requirements.

How can you avoid credit card interest on holiday?

The key to avoiding credit card interest charges is to not overspend while you’re on holiday. This means you should be able to clear your credit card balance in full before interest charges apply.

If, for some reason, you spend more than you can afford to pay off, you could consider switching the debt over to a 0% balance transfer credit card. This could help you avoid any interest charges (as long as you pay off your card before the end of the 0% period and meet all the necessary terms), although you may have to pay a balance transfer fee.

Not using your travel credit card to withdraw cash can also minimise the interest you pay, as cash withdrawals typically come with higher interest charges or fees.

What are the advantages of using a travel credit card over cash when travelling?

While using cash abroad can be an easy way to pay without worrying about fees and can stop you going over your budget, there are several benefits to using a credit card instead.

• There’s a risk that cash could be lost or stolen. A travel credit card can also be lost or stolen, but it’s easy to block a credit card so you can minimise the financial damage caused.
• You may find it easier to pay by card in some places, as certain retailers may be card-only and not accept cash.
• Credit cards can be useful if you end up spending a bit more than expected, whether you decide to buy more gifts or if you need to stay abroad for longer than planned. Just be careful not to go over your credit limit or spend more than you can afford to repay.
• It may be possible to earn cashback or rewards on your spending abroad, unlike if you use cash. Not all travel credit cards offer this perk, however.
• Travel credit cards offer the same Section 75 protection on purchases between £100 and £30,000 that other UK credit cards do. This means that, thanks to the Consumer Credit Act, you can apply for a refund from your card provider as a last resort if your purchase turns out to be faulty, so you won’t have to rely solely on a foreign seller giving you your money back.

Travel credit cards vs. prepaid travel cards

Prepaid travel cards have little to no charges for using the card abroad, just like travel credit cards. However, unlike a travel credit card (which is a form of borrowing) a prepaid card requires you to load money from your current account (or another source) onto the card.

You may be able to choose to convert your pounds into euros or dollars when you add the money to the card, rather than when you use the card abroad. This could allow you to lock in a favourable exchange rate before you travel.

Some prepaid cards will even allow you to put multiple types of currencies on them. You’ll have to check carefully to see if the prepaid travel card you want offers any different currency options.

While applying for a travel credit card involves a hard credit check and other affordability assessments, applying for a prepaid card won’t require any of these checks. So, if you think you’d struggle to be approved for a travel credit card, a prepaid travel card may be worth considering.

Because you can only spend as much with a prepaid travel card as the amount you put on, there’s no risk of spending above your budget and getting into debt. By contrast, a travel credit card could tempt you into spending more than planned and, if you can’t afford to pay off your card, you could end up with expensive debt to pay off.

Drawbacks of prepaid travel cards compared to travel credit cards

Prepaid travel cards have some downsides compared to travel credit cards.

Firstly, once you’ve spent all the money loaded onto the prepaid card, you’ll have to put more money on it before you can use it again. This could be inconvenient, difficult or even impossible while you’re still abroad.

Another potential downside is the charges that may come with these prepaid travel cards. Aside from the foreign exchange fees, which both kinds of cards may or may not have, there may be additional transaction fees, ATM charges and a fee just for getting the card. Some cards may also charge an inactivity fee if you don’t use your card for an extended period. Because of this, you should always check the fees associated with a prepaid card before applying.

It’s also worth noting that you may not be able to use prepaid travel cards everywhere, with many car hire firms not accepting them, for example.

And, unlike travel credit cards, prepaid cards won’t come with any Section 75 protection on purchases.

Travel credit cards vs. debit cards

Like specialist travel credit cards, some debit cards don’t charge any foreign transaction fees when you use them to spend overseas. Moreover, as well as fee-free spending, several debit cards don’t charge any fees if you want to withdraw cash [RP6.1]while abroad (although you should always check if the ATM provider applies any extra charges).

So, is it better to use a credit card or debit card if both options allow you to make payments overseas without any foreign transaction fees? Ultimately, this is down to personal preference.

For example, a debit card may appeal to those who don’t want to risk overspending and being faced with unmanageable credit card debt when they return from their trip. These cards can be particularly useful for small purchases and may be better if you think you will want to withdraw cash while abroad. Furthermore, like some credit cards, there are debit cards with a cashback or reward scheme.

Bear in mind that, while all travel credit cards will require a hard credit check, it may be possible to get a debit card without this search.

However, travel credit cards come with some extra advantages. For example, while you may be able to use a debit card for a hotel or car hire deposit, the company will put a temporary hold on the required funds which means you won’t be able to spend this sum until it is released. However, if you use a credit card instead, this will simply reduce your available credit and won’t tie up any of your actual money.

You can also receive greater protection under Section 75 of the Consumer Credit Act if you use a credit card for larger purchases, unlike debit cards.

When deciding what card to use, consider all the features, fees and terms to help you find the option that’s right for you.

Choosing the best card for your travels

If you don’t want to take cash on your trip abroad, you could consider a travel credit card, a prepaid travel card or a debit card that doesn’t charge any fees for spending overseas.

To help you choose the right card for your travels, consider:

• where you are travelling to
• how much you’re likely to spend
• whether the card charges a maintenance fee (or other standard fees)
• if there are any transaction charges on overseas spending
• how likely you are to withdraw cash, and whether a card charges a cash withdrawal fee
• if a card offers any extra benefits, such as cashback or reward points
• your credit history, as a poor credit score could limit the options available to you
• whether a credit card could tempt you to spend more than you can afford to repay.

Instead of selecting just one option, many people may like to have two or more ways to spend while abroad issues. For example, you could take a travel credit card as well as some cash as a back-up option, in case your card is blocked or stolen, for example.

Before applying for a new card for your trip abroad, it’s worth seeing if any of your existing debit or credit cards offer fee-free overseas spending. However, even if they do, it’s still a good idea to compare them against other options on the market as different cards could offer more attractive perks.

Staying safe when using a travel credit card overseas

If you’re planning to use a travel credit card for spending abroad, below are some tips to help you stay secure.

1. Check your card is ready to use. If a travel card is new, make sure you’ve activated it and that it works before going overseas. Alternatively, if you’ve had a travel card for a while, check the expiry date to make sure it doesn’t expire while you are away.
2. Notify your card provider. Although it isn’t essential, some providers allow you to let them know if you’re travelling abroad via their mobile app, for example. This could reduce the chances of your transactions being blocked as the provider knows you will be overseas.
3. Check your contact details are correct. It’s important that your provider can get in touch with you if it suspects there has been suspicious or fraudulent activity on your account, so make sure your phone number and other contact details are up to date. For example, the provider may text or call you to confirm a transaction is genuine.
4. Download the mobile app. If the card provider has a mobile app, having this downloaded on your phone can make it easier to monitor your account and, if necessary, contact your provider.
5. Note down your provider’s emergency contact details. Even if you have the mobile app, it’s a good idea to make a note of your provider’s phone number so you can get in touch with them in an emergency, particularly if your card or phone are stolen, for example. This means you can quickly report this to your provider so they can take necessary action.
6. Enter your PIN on your first purchase. By using your PIN when making your first purchase overseas (instead of contactless), it can help to confirm to the provider that the transaction is genuine and was made by you. Make sure you shield your PIN when entering it and memorise it — never write it down.
7. Keep your card safe. Always keep your card in a safe place and only take it out when you need to use it. Don’t leave it unattended or on show as this could increase the risk of theft and fraud.

Who offers the best travel credit cards?

The best credit card for travel will typically be one that doesn’t charge any foreign transaction fees. But, aside from this key feature, the best card is subjective and depends on your individual situation and requirements.

For some who are planning to spend a lot when abroad and want to spread the cost of their purchases, the best option may be one that offers an interest-free period of several months, for example.

However, if an individual plans to pay off their credit card each month, a card that offers some form of cashback or reward scheme may be more appealing so they get “paid” when they spend. But, even if you plan to clear your card balance in full before interest charges apply, it’s still important to check the interest rate on purchases, cash withdrawals and other transactions so you’re aware of how much the card could potentially cost you.

It’s also worth looking at whether a travel credit card charges a monthly fee. Cards with a fee can offer good value for some consumers as they often provide generous benefits which could outweigh the monthly expense. But, for others, the maintenance fee may be an unwanted and unnecessary extra cost.

As well as checking the features of a travel credit card, look at the eligibility criteria and see if you qualify for a card before applying. Whether you qualify for a card and, if approved, the interest rate and credit limit you receive will be a significant factor in determining which travel credit card is best for you.

Are you insured for your travels?

If you’re heading overseas, it’s a good idea to get travel insurance so you’re protected in the event of medical emergencies, cancellations, and other unforeseen circumstances.

To find out more about the different types of cover available, see our chart to compare travel insurance policies.