When planning your next overseas holiday, there is more to consider than the most unique restaurants to sample the local delicacies or the most beautiful beach to boost your vitamin D. One important consideration is how you intend to access your money.
This year has seen a shake up of conventional travel money cards and debit cards, including the introduction of a new product that blurs the lines between the two. A number of financial institutions are now also offering free overseas transactions and competitive conversion rates, though some come with conditions attached (such as minimum deposit amounts and number of transactions in the month before travelling).
So, how do you decide which product or payment option is right for you? There are pros and cons to each option, such as currency fluctuations impacting conversion rates and various transaction fees attached to many cards – so it pays to understand the full picture.
It may be helpful to consider how likely you are to make certain types of transactions. Ask yourself if you’ll be making payments with cash or card (this could vary depending on the country you will be visiting… or how fluently you can ask your shop assistant about your payment options), how much money you will need (Beverly Hills versus a remote beach in Thailand) and the fee structure of the product. Next, develop an understanding of the pros and cons of each payment option to help you decide what suits you.
We’ve highlighted some of the key differences for you.
Travel money cards are a type of debit card specifically designed to enable you to spend your own money while travelling overseas. They enable you to pre-load a number of currencies and typically give you the ability to use the card for purchases online, in stores and at ATMs. Some of the potential pros and cons of using travel money cards when overseas include:
|Locked-in exchange rate|
When using a travel money card, you can monitor the changes in exchange rate between the Australian dollar and the local currency at your destination and transfer money onto the card when you are happy with it. Once it is loaded, you will not be impacted by fluctuations.
|Locked-in exchange rate|
Okay, I know I mentioned exchange rate as a pro, but it can be a con as exchange rates do fluctuate, meaning the exchange could become more favourable for you after you have already locked in the conversion rate.
If you are travelling to multiple countries, you can carry a number of currencies on the one card.
When you transfer money to your card, some can take up to three days for the funds to be available, so you may need to plan in advance.
Having a travel money card means you have greater certainty about the amount of money you carry with you as it is already pre-loaded, possibly helping you more easily manage your set budget.
|Fees to be aware of|
Depending on the product, some travel money cards charge fees for loading or topping up the card, transferring between wallets, per transaction or using an ATM. Some providers will also include a margin in their exchange rates.
|Reduced security risk|
If your card is stolen, only the amount on the card is at risk before you have the chance to cancel it, unlike credit cards or debit cards which may have additional limits.
|May not be accepted as pre-authorisation|
Some hotels and rental services require pre-authorisations, however they may not accept travel money cards for this. Many operators prefer credit cards instead.
When you set up your travel money card, you are required to forecast approximately how much money you will need for the trip. If you do not use all the money on the card, transferring it back to AUD will typically mean you pay for two conversions. The same applies if you need to transfer from one currency to another if you travel through multiple countries.
There are several types of credit cards available today, each with their own pros and cons to consider. From low-fee, no-frills products through to premium, rewards-based cards, the most suitable product for you depends on your spending habits and requirements. Some of the possible pros and cons of using a credit card when travelling include:
|Favourable exchange rates|
Some providers even offer exchange rates that are very close to the market rate.
Some cards charge a fee of around 3% of the amount withdrawn, on top of the currency conversion fee, for you to access your money via an ATM, and interest on this amount usually begins accruing immediately.
|Larger funds available|
The generally larger spending caps available on credit cards can make it easier to travel with a more flexible/lenient budget. It can also be convenient for pre-authorisation, with many service providers, such as hotels and car rental companies, often requiring a credit card as a deposit and holding aside additional funds, which can take from one day to a week to clear.
|Currency conversion fee|
The majority of cards apply a conversion fee of around 2-3% per transaction on top of the exchange rate that you receive. However, there are cards available that do not have this fee or will waive it if certain conditions are met.
Some premium cards also come with services that can help you make bookings or requests for your travel. These products typically come with higher annual fees, and you should weigh up if the benefits you will receive will outweigh the cost.
|More funds available|
Again, this can be a pro as well as a con. Having more funds available can lead to the temptation of spending more than you otherwise may have, so budgeting carefully is important.
Some premium cards offer travel insurance for travel paid with your card. It is a good ideal to check your product’s policy to make sure you are comfortable with the cover provided.
Some cards offer rewards points when making purchases overseas such as Frequent Flyer points or Velocity points. Be mindful, however, that points are usually offered on cards that have a currency conversion fee on transactions, which may outweigh the benefits you will derive from points.
Debit cards are generally the most accessible option for most people, as just about everyone has a transaction account. The functionality of your card may vary, with payWave/PayPass and digital wallets being common, and it is a good idea to check with your provider that you will be able to access your money when in another country. Some potential pros and cons of using a debit card while overseas include:
| Cheaper ATM access |
Debit cards generally charge less in fees at international ATMs than credit cards, especially if your bank belongs to an international ATM network or waives third-party charges for customers who meet certain criteria (such as minimum deposit and transactions per month).
|Transaction charges |
There are usually fees involved when withdrawing money at ATMs or per transaction (for converting to a different currency), however, we are seeing more financial institutions offer transaction accounts that no longer charge these fees, or waive them if certain conditions are met.
| Exchange rates |
Similar to credit cards, debit cards generally offer more favourable exchange rates compared to travel money cards.
|May not be accepted as pre-authorisation |
Some services, such as hotels, may not accept debit cards for pre-authorisations, preferring credit cards instead.
| Budgeting |
With a set limit available (i.e. your own money in your account), it can be easier for some travellers to stick within their budget.
Good, old-fashioned cash. It is important to note that not all countries are as digital as Australia when it comes to payments and so depending on where you’re travelling, it can be a good idea to have some cash in a foreign currency handy. This can be accessed through a currency exchange either in Australia or your destination. Some possible pros and cons of using cash as your main transaction option include:
| Budgeting |
If you take only a certain amount of money with you, you are only able to spend what you have, meaning you are likely going to stick to your budget with less opportunity for temptation to sway you.
| Less protection |
Unfortunately with cash, if it is lost, you will not have any backup. You may be able to claim it back on travel insurance later, however you will not have immediate access to more money. There is also a security risk of carrying around all your cash on your person.
| Locked-in exchange rate|
By monitoring the exchange rate, you can lock in a transaction you’re comfortable with, to possibly avoid fluctuations while travelling if you take enough cash with you to last your trip.
| Exchange rate |
Exchanging cash often has a margin included in the rate, so it pays to do your research to make sure you are happy with the rate on offer.
If you only use cash, you will have a set amount of money available to you, no more and no less. This means you have no choice but to stick with what you have (even if you want to try an extra activity or make an unexpected purchase). It also means if you return home with any cash, you will most likely need to pay for the conversion to get Australian Dollars.
Again, some businesses require credit cards for pre-authorisations and may not accept a cash deposit.
About Josh Sale
Josh Sale is a Senior Research Analyst at Canstar, responsible for the continued methodology development and delivery of Canstar’s flagship star ratings. With tertiary qualifications in economics and finance, he gets a kick out of helping Australians find better financial products by transforming millions of rows of calculations into a consumer-friendly star rating.