Travel credit cards explained

Travel credit cards explained

By Matt Fernell, Editor-in-Chief at Published 16th April 2024.

Matt Fernell

Travel credit cards are designed for use abroad as they don't charge a fee when you make purchases overseas. Here’s everything you need to know about how they work. 

What are travel credit cards?

Travel credit cards don’t come with any foreign transaction fees, which means you can use them to spend abroad without being charged every time you use them in a shop or restaurant. 

Most standard credit cards will charge you when you use them in another country, typically an average of 3% of each foreign transaction. 

For example, if you used a regular credit card abroad and spent £150, you would be charged an extra £4.50, which would be added to your card’s balance.

Using a travel credit card can help you avoid paying these fees and give you the best possible exchange rate when paying in the local currency, making them one of the best credit cards to use abroad. 

How does a travel credit card work? 

Travel credit cards work the same way other credit cards do:

  1. You use the card to make a purchase, typically in a store or restaurant.

  2. You then have to pay back the amount borrowed. If you're unable to pay back the total amount borrowed, you will at least need to make the minimum repayment, or you will face a penalty.

  3. After a month has passed, any overdue balance you have will start to accrue interest, with the rates based on the card's APR.

The longer you leave your balance unpaid, the more interest you’ll pay. Earning interest could quickly wipe out any savings you make on foreign transaction fees, so if you use a travel credit card, make sure you can clear the balance.

For example, if you've been on holiday and used a travel credit card to spend £500, you would have saved around £15 compared to standard credit cards. However, if you don't pay off what you've borrowed within a month, you'll have to pay interest on your overdue amount.

If your card has an APR of 29% and you only pay £125 back within a month, the remaining balance of £375 could accrue around £109 if unpaid, with interest increasing the longer you leave it.

This shows that if you don't pay off what you've borrowed in full within a month, the interest you have to pay can cancel out any potential savings, even when using the best travel cards.

Why use a travel credit card?

Travel credit cards are an excellent way to save money abroad because no fees or charges are eating away at your budget, making your money go further.

When you use the best travel credit cards, you can benefit from a near-perfect exchange rate. This can prevent you from having to pay more than necessary when you’re abroad.

Travel credit cards are also an alternative to carrying large quantities of foreign currency around while you're on holiday, meaning your money is safer.

Travel credit cards also come with Section 75 protection, meaning any purchases over £100 are protected if anything goes wrong.

Most travel credit cards don’t have withdrawal fees, which can save you money if you need to withdraw cash from an ATM while abroad.

Some travel credit cards also offer rewards for frequent travellers, such as points for flights and discounts on travel insurance.

How much do travel credit cards cost?

Travel credit cards usually don't charge annual fees to keep the account open. So, if you spend on the card and repay what you've borrowed within a month, it shouldn't cost you anything to use it.

Travel credit cards can charge high rates of interest (APR). If you use your card to purchase goods and don't pay the balance back within a month, interest will be applied to your debt.

Taking a long time to repay your balance will increase how much you need to pay back, making the total cost of using your card more expensive. To avoid this cost, repay your balance as soon as you can.

Can I withdraw cash with a travel card?

You can withdraw cash with a travel credit card, and the majority won't charge you a fee. This makes withdrawing from travel cards a great way to access cash when abroad, as it'll be one of the cheapest ways to do so.

When withdrawing cash with a credit card, make sure you're prepared to repay it quickly to avoid paying large amounts of interest. Many cards will charge interest on cash withdrawals instantly, and you can even be charged daily. If unpaid for a few days, the interest can make withdrawing through your travel card expensive.

Are there any alternatives to travel credit cards?

Travel credit cards can be a great way to spend abroad, but there are other options. Alternative ways to spend overseas include:

  • Travel debit cards: Some debit cards linked to your current account allow you to spend abroad with low or no transaction fees. 

  • Travel money cards: Prepaid travel cards can be preloaded with foreign currency and spent abroad without fees. They can also help you stick to a budget and lock in a favourable exchange rate.

  • Cash: Taking some cash abroad is still a good idea because some places may not accept cards. Always look for the best exchange rate and get your money before you travel. 

How to manage a travel credit card

Follow these tips to make the most of your travel credit card:

  • Choose a card that doesn’t charge any fees for foreign transactions or ATM withdrawals

  • Make sure you get a card with a credit limit that will cover all of your spending abroad

  • Always choose to pay in the local currency when making purchases, as this will help you get the best exchange rate

  • Make sure you pay off your balance in full at the end of the month to avoid being charged expensive interest

  • Set up a direct debit to pay off your travel card balance to make sure you don’t miss a payment

  • Only use the card for foreign transactions - e.g. don’t use it to spread a large payment or do balance transfers unless it offers a 0% interest period

  • Avoid missing a payment, as this could incur a fee and damage your credit score

The information provided does not constitute financial advice, it’s always important to do your own research to ensure a financial product is right for your circumstances. If you’re unsure you should contact an independent financial advisor.