If you’re planning a trip overseas, you’ll probably be packing plastic. Most of us do these days, but which type should you take: debit card, prepaid card or credit card?
The simplest option is to take the debit card attached to your current account and slap it down in bars, restaurants and shops, just as you do at home. There is a drawback, though. Debit cards have hidden foreign transaction charges and currency conversion fees, which can take a big bite out of your spending money.
Spend €5 (£4.30) on a debit card, and you will face an average charge of 53p. The lowest charge is 7p and the highest is a punitive £1.50, according to new research from financial information service Defaqto. These charges vary wildly, so check what your bank bills you.
By comparison, the average credit card fee is just 11p, and the maximum a scarcely more expensive 13p.
This suggests to me that credit cards have the edge over debit cards, but what about those prepaid foreign currency cards…?
Prepaid foreign currency cards allow you to load cash before you travel, in the currency of your choice.
I’ve always been a little suspicious, because prepaid foreign currency cards come with a host of little charges that can really add up. Defaqto’s research confirms my suspicions. It says that most prepaid cards have high fees or other catches such as loading or renewal charges, while some (it picked out Asda): “have very expensive non-sterling exchange fees, and should be avoided“.
In total, Defaqto studied 64 sterling and euro-denominated prepaid cards and found that only five had no fees for adding money, no service charges, no transaction fees, and no renewal or dormancy fees. Worse, 15 cards charged a hefty fee of around 2% to load money from a debit card, while six charged a flat rate 50p or £3.
Unlike with credit cards, you cannot use prepaid cards for car hire and in some cases even for buying petrol.
Many prepaid cards have very poor exchange rates, which act as a hidden charge, Defaqto added.
Defaqto did single out one prepaid card for praise: the prepaid card from app-based bank Revolut, which it said is virtually free to use abroad. I was pleased to hear that, because I use Revolut.
There are benefits to prepaid cards. You can often lock in a currency rate in advance, and they offer discipline for those who don’t trust themselves with a credit card. Families could take one out on behalf of teenagers who are going away, as they can monitor their spending and top up the balance if necessary (and it will be necessary).
In the end, credit cards appear to me to be the superior option.
Beyond what’s mentioned above, you also get extra security on purchases worth between £100 and £30,000 under Section 75 of the Consumer Credit Act 1974, which you don’t with other types of plastic. Providers are jointly liable if a retailer goes bust before you receive your goods, or if the goods don’t arrive or are damaged, and the retailer does not offer redress. This applies to online, telephone and overseas transactions too.
Since many credit cards carry foreign transaction fees, my personal tip is to look for a credit card without these charges, and there are a growing number to choose from. I have one from Nationwide, and it has saved me a small fortune over the years.
Credit cards certainly aren’t perfect. For instance, wherever possible, you should avoid using them to withdraw cash, as you will pay interest from day one. However, I reckon they may be the best way of making your holiday cash travel further.
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