By Matt Fernell, Editor-in-Chief at Finance.co.uk. Last updated 8th June 2023.
Historically, when planning a trip abroad, part of holiday prep included purchasing travel money, but now a days, taking foreign currency away with you is just one of the many options available.
Exchanging foreign currency and having large amounts of cash on you is no longer the only option when travelling, and there may be alternatives you might want to explore.
Going on holiday can be expensive in more ways than one when you add together the cost of flights, accommodation, activities and food. You can save yourself money by using the right payment method when you’re abroad.
Here are some of the best options for spending when overseas:
A prepaid travel card can be preloaded with money in your desired currency before you jet off on holiday. Just like with travel money, they come with the benefit of being able to budget easily, because you can only spend the money you’ve loaded onto the card.
Plus, unlike typical debit cards, they’re designed to be used abroad, so rather than paying foreign transaction fees every time you spend, you simply pay the exchange rate and load charges when you get the card and add funds to it.
Some prepaid travel cards charge a monthly fee and others may charge you for withdrawing cash from an ATM abroad, so it’s a good idea to do your research and use a comparison site to find the right one for you.
It’s worth bearing in mind that the exchange rate is fixed when you load the card, so you could lose out if the pound strengthens after you’ve loaded the card.
Like travel prepaid cards, travel credit cards are designed to be used abroad and are a great way to spend abroad without the substantial foreign transaction fees that come with regular credit cards.
Lots of them come with a handy app which allows you to track your spending, helping you to stick to your budget, and a function to freeze the card if your card was lost or stolen, meaning travel credit cards can be much safer than carrying large amounts of cash around with you.Travel credit cards typically come with near perfect exchange rates, which makes them better value than exchanging physical cash.
They also come with section 75 protection - which means your card provider is jointly responsible if a purchase you made went wrong - for example you bought an item online and it never arrived.
Section 75 allows you to make a claim against your credit card provider to get your money back if a retailer refuses to honour the contract or if they were to go into administration.
Of course, a travel credit card is a way of borrowing money, and when used sensibly, they can be a great way to save money when you’re abroad. However, it can be easy and tempting to overspend, so you should only use one if you have the means to repay your balance in full and on time at the end of each month to avoid paying expensive interest.
A word of warning for those with a poor credit history - unfortunately travel credit cards are often only offered to those with a good or excellent credit score.Additionally, travel credit cards do sometimes charge an annual fee, which will add to the overall cost.
Using your debit card abroad, like you do at home is one of the most convenient ways of spending abroad, because you don’t have to apply for a new card or go to the effort or purchasing foreign currency, however whether or not you should will depend on your current account provider.
Thanks to challenger banks like Monzo, fee-free foreign spending has become much more common in recent years.
Unfortunately, some current account providers still charge expensive fees for using your debit card abroad, so before you use your card overseas, look at your providers policy on foreign transaction fees and exchange rates to make sure you’re not going to be hit with expensive charges everytime you pay for a round of drinks or dinner at a restaurant.
Another benefit of using your debit card on holiday, is if you do need cash when you’re abroad, using an ATM at your destination can be one of the cheapest ways to access foreign currency.
Some banks and current account providers don’t charge for foreign ATM cash withdrawals, or allow you to withdraw a certain amount for free. This, of course, will depend on your provider, so check your limits and any fees before you go.
Whether or not you’ll be charged for using your debit card abroad will depend on your debit card provider. It’s really important to check before you travel because fees per transaction can be expensive and quickly add up.
Foreign transaction fees are the most common type of fee; they tend to apply when you make purchases or withdraw cash when abroad. Foreign transaction fees tend to be around 2.99% of the transaction amount. This might not seem like much, but could soon add up, because you’ll be charged every time you make a transaction during your trip.
Some premium current accounts or debit cards from digital or challenger banks offer fee free foreign transactions, or allow you a certain amount of spending for free and once you hit the limit will start charging a fee per transaction.
If you plan on taking multiple or regular trips abroad, it might be worth opening or switching to a current account that doesn’t charge a foreign transaction fee. Just make sure you do your research, compare your options and weigh up the total costs, like annual or monthly fees, before making a decision.
Buying travel money before you go on holiday can still be a good way to spend abroad. Not only can it help to budget, but there are still countries that prefer cash or don’t accept certain debit or credit cards. It’s always best to do your research though because there are certain countries who are nearly totally cashless.
You don’t always get the best exchange rate buying foreign currency travel money before you leave, because exchange rates can fluctuate daily. Credit and debit card providers can change their exchange rates in real time, but once you’ve bought your travel money, it’s value could go up or down if the pound strengthens and weakens.
Many travel money providers charge commission, which is essentially a fee for arranging it for you, and is how the provider makes money. Even the providers who don’t charge commission will often offer worse exchange rates to make a profit.
Another risk of carrying cash is that it could get lost or stolen, and although travel insurance could cover your loss, it isn’t guaranteed and you could be left stranded without a way to pay for things while you’re on your travels.
The best solution for spending abroad will depend on your personal circumstances and preferences, where you’re travelling to, what your credit rating is and whether or not your trust yourself with a credit card.
No matter how you decide to spend abroad, it’s a good idea to take a backup payment method in case of emergencies.
If you want to completely avoid bank charges when you’re abroad, you can opt to use a prepaid travel card or purchase travel money before you leave.
Travel credit cards or debit cards designed for use abroad that don’t charge foreign transaction fees can also be a great way to avoid bank charges while you’re abroad, as long as you stay within your limits.
Avoiding foreign transaction fees won’t necessarily mean you’ve got the cheapest option. You need to make sure you’ve taken into account the total cost of the payment method you’ve chosen. You’ll sometimes be charged commission when you exchange cash for foreign currency and you may not get the best exchange rates.
Debit, credit and prepaid cards can all come with other fees, such as an annual fee just for keeping your account open and load charges for prepaid cards.
Another important thing to remember when you’re spending abroad with a card, is to choose to pay in the local currency if you’re given the option. If you choose your home currency, the retailer can charge its own exchange rate, which might not be competitive and they may also charge a conversion fee on top.
It was once common practice to need to tell your bank when you were planning to travel, because many banks would assume foreign transaction fees were fraudulent and would therefore freeze the card in order to protect customers.
The good news is most banks say it’s no longer necessary to let them know before you travel abroad. In the age of digital banking, if your card provider thinks your activity is suspicious, they’ll often contact you to confirm it’s you making transactions either online or via your banking app.
Whilst banks and providers no longer automatically block your card as soon as it’s used abroad, it’s a good idea to make sure you take a backup payment method in case your card were to get lost, stolen, frozen or blocked.
It’s also a good idea to make sure your contact details are up to date with your bank in case they do need to contact you regarding suspicious transactions.
Having a small amount of local currency on you can be a good idea when travelling, because you never know if you’ll be somewhere where you need cash for things like taxi’s, tipping and market stalls.
Whether or not you should get this cash before you travel mostly depends on how much your provider charges you for withdrawing cash at an ATM abroad.
If your card provider offers fee-free foreign ATM withdrawals, taking cash out abroad will likely be cheaper that buying foreign currency before you leave.
However, if your bank charges expensive foreign transaction fees, and you don’t intend to apply for a card designed for spending abroad before you leave, it could be cheaper to purchase travel money before you leave.
Of course, there may be some places you travel to where it’s necessary to buy travel money before you go, for example if you’re travelling to a place with very few cash machines or to an area of the world that doesn’t accept cards as a form of payment.
It’s important to do your research before you purchase any travel money, most countries have a limit on how much cash you can carry in and out, so make sure you’re aware of your destinations restrictions before you travel.
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.