Aussies love travelling and when it comes to spending money overseas, everybody’s got their own hacks.
There are the credit card enthusiasts, who insist the loyalty points are worth it. Others prefer the safety net of cash in their wallet.
But whether exchanging currency in cash or via plastic, many of us don’t realise how much these seemingly small transaction costs can add up to.
According to Australia’s consumer watchdog, the ACCC, we pay around $2 billion dollars a year on foreign transaction charges alone.
Exchange fees, insurance benefits, ATM charges, frequent flyer points and the FX rate – that’s a lot of stuff for holiday-makers to think about.
To take off some of the strain, here are a few tips you might want to consider before the next trip.
Debit card vs. credit card
There’s a tendency to compare the two, but there are pros and cons of using either option, according to Kelly Spencer, general manager of currency exchange retailer Travel Money Oz.
Plus, when it comes to fees and rates, she said there’s not a huge difference.
Her advice? Take both a transaction card and a credit card.
Whether you’re a fan of using a credit card or not, they’re still the gold standard when you’re checking into hotels or putting down a security bond.
“Use your credit card as verification that you have funds available,” Spencer told YourMoney.com.au.
“Because if you’ve budgeted your money and $1000 of that is going on to your holding deposit, it takes away from what you’re able to spend.”
So if they’re the gold standard, why not use a credit card for everything?
The cash advance interest rate to get money out at an ATM is a high 20 per cent on average, according to an analysis by RateCity.
Anthony Bianco, a popular blogger at The Travel Tart, prefers to stick with his credit card on most transactions, but also advises a mix.
“I take one Visa (debit card) and one Mastercard (credit). I’ve found that both are widely accepted everywhere, except in eastern Africa, [where] the majority of places and ATMs only take Visa card,” he says.
The lowdown on travel cards
A travel card is like a debit card, except you can lock in an exchange rate before you leave.
That’s a good idea if the Australian dollar is at a high point and you predict it might fall again by the time you travel.
Plus, for the traveller that likes to have everything in order, it means you can better plan your spending, according to Spencer.
“You don’t have to try and work out the conversion on the day. And since some cards have transaction fees, it can be hard to work out how much something costs,” she says.
However, card expert and founder of iFlyflat.com, Steve Hui, advises only applying for one if you plan on spending upward of $3,000 and can lock in a good rate.
He says you should be aware that transaction and ATM fees on travel cards can be higher than on regular cards, plus some have fees you wouldn’t normally see, such as an account opening fee, a closing fee and a fund top up fee.
What fees should you look out for?
There’re plenty of ways you can get hit by fees on holiday. Whether you’re using a debit, credit or travel card overseas, here are just some of the possible charges:
• Overseas ATM usage fees
• Currency conversion fees (the average rate is three per cent)
• Cash advance fees (for credit cards)
• Local ATM usage fees
• Inactivity fees – some providers charge you for not using the card for a period
• Top up fees – Some chargers provide up to one per cent to add money to your card online
While you can hunt around for a card that cuts out most of the above, with hundreds of cards on the market, even the experts have a hard time sifting through the details.
In fact, Hui says it’s near impossible to find the ‘best’ card on offer, because the real costs are usually hidden.
If you’re a frequent traveller, it’s worth trying to cut out transaction and withdrawal fees, but Hui warns customers not to get too focused on the ‘zero-fees’ angle.
The problem with the ‘no fees’ sell, he says, is they often recoup those costs through the currency exchange.
“You don’t actually know what the true FX rate is. So, just because you have no fees, it doesn’t mean you’re getting the best deal on rates,” says Hui.
Hui’s advice? Unless you’re a very regular traveller or planning to spend more than a few thousand dollars overseas, it’s probably not worth the stress of finding a new card.
“People overcomplicate their lives unnecessarily just to save a few bucks,” he says. “Just keep it simple. Take the card you have overseas and monitor it.”
Card currency conversion
Should you stress about the currency rate? That probably depends on how much you plan to spend.
Card providers compete on rates for different currencies, but the exchange rate is typically set by the international card schemes such as Mastercard, Visa and American Express.
When we looked at travel cards of the major banks, we found that all four institutions had similar US-AUD rates at the time of writing, although ANZ was marginally better.
To compare a non-bank product, the Travelex money card offered a somewhat better rate, although it came with higher exchange fees.
Hui says following the exchange rate on various card products isn’t really worth your time, but there is one costly mistake that travellers frequently make.
That’s, if an overseas merchant asks whether you’d like to pay in the local currency or AUD using your card, always choose the local currency.
Otherwise, you’ll get hit by a poor conversion rate along with additional fees by your provider.
Take cash with you
Always carry some cash to have some cash on hand in case you end up somewhere that plastic isn’t accepted.
Bianco says he always carries at least US $200 because it’s the most globally accepted currency and can be easily exchanged if need be.
When it comes to exchanging currency, Spencer advises to always look at the options online first, especially if you need a currency that’s not readily available.
“Always look for retailers that offer the best price guarantee. So, anyone that has a better price – they’ll beat it,” she says.
Some services allow you to order the cash online before you get to the booth for a better rate.
As to what to avoid? She says never exchange at the airport if you can help it, as the vendors charge through the roof and be wary of the ‘no FX fees’ angle, because they hide the costs in the exchange rate.
Call your card provider
Whether you take a credit or debit card overseas, make sure you tell your provider before you leave.
“I’ve forgotten to call my bank before heading overseas to tell them I was going to a number of countries when travelling,” says Bianco.
“When they saw legitimate transactions being added to the card, they blocked it. I then had to call home to organise them to unblock it,” he said.
Unexpected overseas transactions are a red flag that can sometimes result in your card being locked down – typically at the most inconvenient time.
Take more than one option
It can be difficult to predict what you’ll find when you arrive in your holiday destination.
Hui says, for ease of mind, your best bet is to take a debit card (or travel card), a credit card and some cash as a backup. You don’t want to be caught out in a foreign land.
As for finding the best product on the market – Hui’s biggest money tip?
“Just enjoy your holiday. You don’t want to be thinking too much about saving a few dollars if you can help it.”