Vidhu Bajaj
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11
min read
Key highlights
Whether you’re considering a family holiday in Bali or a romantic wine tour of Tuscany, how to best access and spend your money while overseas has likely come up during your travel planning.
Three of the most popular options for Australian travellers to facilitate their spending needs are travel money cards, credit cards and debit cards. So, with a plethora of options available to you, which is the best choice when travelling?
Read on to learn more about each option.
Travel cards, credit cards, and debit cards: A quick comparison
| Feature | Travel Cards | Credit Cards | Debit Cards |
|---|---|---|---|
| Exchange Rate | Locked in at the time of loading | Varies with each transaction | Varies with each transaction |
| Multiple Currencies | Can typically load multiple currencies | Single currency (but may work globally) | Single currency (but may work globally) |
| Currency Conversion Fees | Typically avoided if preloaded in local currency | Often incur fees | Often incur fees |
| Spending Limit | Limited to the amount preloaded | Based on credit limit | Limited to account balance |
| Acceptance | Widely accepted (Visa/Mastercard) | Widely accepted (Visa/Mastercard) | Widely accepted (Visa/Mastercard) |
| Security | Not linked to primary bank account, lower risk if stolen | Higher risk if not managed responsibly, potential to accumulate debt | Linked to primary bank account, higher risk if stolen |
| Additional Benefits | Typically none | May offer perks like travel insurance, frequent flyer points, and cashback offers | Easy access to savings, manageable via apps and digital wallets |
| Fees | Potential fees for issuance, loading, reloading, and ATM withdrawals | Potentially high interest rates, international transaction fees, and annual fees | Potential foreign transaction fees and ATM withdrawal fees |
Compare credit cards
Now let's delve deeper into each option to understand their specific benefits and drawbacks.
Travel money cards
A travel money card is a type of prepaid card specifically designed for use while traveling abroad. It allows you to load funds onto the card in one or more currencies, which you can then use to make purchases and withdraw cash at ATMs.
Essentially, a travel card functions similarly to a debit card, in that you deposit a certain amount into the account, and you don’t typically have a credit limit. However, unlike a debit or credit card, you can lock in an exchange rate at the time of depositing the funds and load multiple foreign currencies onto your account – which may be beneficial for multi-country trips.
Benefits of a travel money card
Some of the potential benefits of using a travel money card include:
Load multiple currencies
Travel money cards generally allow you to load multiple currencies. This could be beneficial if you’re travelling through multiple countries, as you won’t need to keep exchanging currency.
Lock in exchange rate
One of the key advantages of using a travel money card is the ability to lock in an exchange rate at the time you load money onto the card. This can be particularly beneficial when the exchange rate is favourable, protecting you against future fluctuations in the currency market. By locking in a rate, it’s possible to budget more effectively for your trip, knowing exactly how much you're spending in your home currency.
Potentially avoid ongoing currency conversion charges
As the money you deposit into the travel card is typically converted into the currency or currencies you need at the time of purchase, you may avoid paying ongoing currency conversion fees throughout the trip. However, there may be some fees charged by the issuer, including purchase or closure fees, overseas ATM fees and inactivity fees.
Relatively less risk if stolen
One of the biggest benefits of a travel money card is that it is not connected to your everyday banking accounts or personal financial details. Meaning, if your travel money card is stolen, while this can be inconvenient and highly frustrating, your main financial details and any linked financial products have not been compromised by criminals. Dealing with issues like identity theft can be much more challenging while overseas.
Issued by Visa and Mastercard
Travel money cards may be issued by Visa or Mastercard, so they have a high likelihood of acceptance around the world.
Drawbacks of a travel money card
While using a travel money card has several potential benefits, it’s worth considering the risks to make an informed choice. Some of the potential risks of using a travel money card include:
Associated fees
Even though you might save on ongoing currency conversion fees, be mindful of the other fees associated with the card, such as purchase fees, ATM withdrawal fees, or inactivity fees.
No credit facility
A travel money card gives you access to your preloaded funds and doesn't typically offer a credit limit.
Currency limitations
There might be restrictions on the specific currencies you can load, which could be inconvenient if you travel to a country with a less commonly supported currency.
Restrictions on pre-authorisations
Certain services, such as hotels and car rental companies, often require a pre-authorisation, where they temporarily hold a specific amount of funds as security before the actual transaction occurs. Some merchants may not accept travel money cards for pre-authorisations and might require a credit card instead.
Credit cards
A credit card provides access to a line of credit and works similarly to a debit card, but instead of drawing from your bank account, it allows you to borrow funds up to a predetermined credit limit (ranging from $2,000 to over $100,000). You are typically charged interest on the purchases you make, and any cash withdrawn from an ATM.
Benefits of a Credit Card
Credit cards, though potentially risky when not used responsibly, may offer various benefits and conveniences that can enhance your travel experience and serve as a financial safety net in emergencies. However, it's important to remember that credit cards can also lead to significant debt accumulation if balances are not paid off promptly each statement period.
Perks and freebies
Some credit cards are designed for overseas spending, and can offer customer perks like complimentary travel insurance, frequent flyer points earned on spending, access to airport lounges, and more. Some may also waive foreign transaction fees when spending overseas (or on overseas-based websites).
Sign-up bonuses
One of the biggest advantages of credit cards can be that you may earn bulk frequent flyer points on sign up that can be exchanged for flights, seat upgrades, accommodation, rental car hire, and more.
Widely accepted
Credit cards can be more widely accepted – particularly in hotels or at rental car hire lots – than travel money cards or debit cards. Some hotels may not let you book a room without offering your credit card details.
Emergency access to credit
Some travellers may opt to bring a credit card in case of emergencies, due to their wide acceptance and the access to credit provided.
Drawbacks of a credit card
Although a credit card can be a handy tool for managing expenses overseas, it's important to understand the risks, including potentially high fees and interest rates, as well as the temptation to overspend. Despite their potential benefits, credit cards may not be suitable for everyone.
Debt accumulation
It is very easy to accrue debt if you’re not diligent with paying off your balance in time each statement period, due to high interest rates and additional charges. While having greater access to credit you otherwise may not have in your bank account can be helpful when travelling, it can be easier to accrue debt if you don’t meet your repayments.
Credit requirements
Obtaining a credit card requires meeting specific criteria, including a hard credit check, which might affect your credit score.
Temptation to overspend
A credit card allows you to spend money up to a predetermined credit limit, but you need to repay that money with additional interest. While access to a line of credit can be handy during emergencies, it could easily snowball into debt if you're not careful, especially for those who lack impulse control while shopping or spending.
Potentially high fees and additional charges
When using credit cards internationally, be aware of potential currency conversion and international transaction fees, which can be as high as 3% per transaction or more. It's advisable to consult your card issuer about conditions that might waive these fees or to seek a card that does not impose them. Additionally, other charges such as monthly account-keeping, annual, and foreign transaction fees may apply, increasing the overall cost of using your credit card abroad.
Debit cards
A debit card is your humble, everyday bank card linked to a transaction account. Some travellers may simply opt to use their main bank card when spending overseas, as it is an accessible option compared to taking out a new travel card or credit card.
Benefits of a debit card
If you don’t want to go through the hassle of pre-loading a travel card and prefer not to use credit, you might choose to use your debit card to access funds while traveling. Here are some potential benefits of using a debit card for your expenses when traveling.
Many debit cards refund, or do not charge, overseas fees
Depending on your card issuer, you may not incur additional fees for transactions made in foreign currencies when using your card overseas, or any such fees may be reimbursed.
Global acceptance
Debit cards offered by Visa and Mastercard are widely accepted, ensuring easy access to funds and secure transactions globally.
Easily access and view your cash through apps and digital wallets
Using your debit card gives you full access to your funds and the convenience of managing your account through apps and digital wallets. These tools allow you to monitor transactions, check balances, and control your card settings, enhancing security and efficiency.
Access to all your funds, not just spending money
Unlike travel cards which must be loaded up ahead of time, opting for using a debit card means you’ll have access to all your funds, not just a small portion. Depending on your spending habits, this can be advantageous or risky.
Drawbacks of a debit card
While using a debit card for your holiday expenses is convenient, it's important to be aware of any associated risks before deciding.
Some foreign transaction fees may be charged
Debit cards may incur foreign transaction fees if you don’t do your research. This can include currency conversion fees and overseas ATM fees, which can climb up to 4% of every transaction. Meaning, if you spent $5,000 on your overseas holiday, your bank is pocketing at least $200 – the equivalent of an additional night’s stay for mid-level hotel accommodation. There are many debit cards and transaction accounts that do not charge these fees, so it’s worth doing your research before travelling.
Not every retailer accepts debit cards overseas
Even though debit cards are widely accepted, you may encounter issues with pre-authorisations, especially at some hotels and car rental companies. These merchants often specifically request credit cards.
Funds may stay on ‘hold’ longer
Hotels can put a ‘hold’ on funds when checking in, which can take weeks to return to your account, even after the payment for your stay has been deducted from your card.
If stolen, it may be more challenging to repair these damages
If your debit card is stolen, the thief could potentially access your entire account. Although most card issuers implement robust security protocols, recovering stolen funds can be challenging. It typically requires a comprehensive investigation by your bank, during which you may not have access to the stolen money.
So, which option to consider for spending your cash while travelling?
Ultimately, the best option for your overseas spending depends on your specific needs and budget. It’s worthwhile reviewing the benefits and drawbacks listed above and carefully thinking about the types of destinations you’re visiting and how you are likely to spend your money.
For example, if you’re going to a destination with a higher crime rating, it may be worthwhile bringing a card you’re less concerned about if it’s stolen, like a travel card. Or if you’re likely to be withdrawing cash frequently, a credit card that charges a high cash advance rate is likely to not suit you as much as a debit card with no foreign ATM fees.
Comparison tools, such as the tables on this page, may be helpful in allowing you to compare your options. See card types side by side, including any fees or interest rates charged, so you can compare apples with apples.
Compare credit cards
Product database updated 13 Sep, 2024
This article was reviewed by
Personal Finance Editor
Mark Bristowbefore it was published as part of RateCity's Fact Check process.
Vidhu Bajaj
Personal Finance Writer
Vidhu is a Personal Finance Writer at RateCity. She has been writing about finance topics from car loans and home loans to superannuation and cryptocurrencies for over five years. Before moving into finance, Vidhu went to law school where she studied human rights law. She has a Bachelor of Law degree and has previously worked in asset finance for Clifford Chance for more than four years. During her time at Clifford Chance, she worked in the India, London and Hong Kong offices on everything from aviation to vessel finance. In her spare time you’ll find her reading the Australian Financial Review or spending time with her dog Coco.
Vidhu is a Personal Finance Writer at RateCity. She has been writing about finance topics from car loans and home loans to superannuation and cryptocurrencies for over five years. Before moving into finance, Vidhu went to law school where she studied human rights law. She has a Bachelor of Law degree and has previously worked in asset finance for Clifford Chance for more than four years. During her time at Clifford Chance, she worked in the India, London and Hong Kong offices on everything from aviation to vessel finance. In her spare time you’ll find her reading the Australian Financial Review or spending time with her dog Coco.
