Dealing with money when you’re abroad can be expensive. Cash machines charge you a 2% fee to take money out and using any sort of normal debit or credit card results in a poor exchange rate. Here’s everything you need to know about saving money while travelling abroad.
As an example, to use my normal current account debit card, I get a 2.75% exchange rate loading, meaning it costs me nearly 3% extra than the price on the till. I also get charged 2% when withdrawing cash from the cash machine with a minimum of £2, meaning it’s more expensive to withdraw smaller amounts of money below £100.
For short term trips, you can exchange currency before hand, although this does involve carrying around a significant amount of money. For longer term travels, this isn’t feasible.
I looked at several options on what to do to get the best value while I’m away:
- Open a local bank account
- Opening a UK Euro account
- Opening a debit/credit card with low foreign currency charges
Opening a local account
I considered opening a bank account in the country when I arrived, but this had a number of issues. For only three months, I’m not sure the hassle of opening an account is worth it. I’d have to visit a branch and discuss matters which are far above my fluency level and then I’d have to wait several weeks for the card to arrive, requiring me to use my UK cards in the mean time. I’d also have to deal with transferring money internationally from my UK bank account every fortnight or month, which often has a charge. Maybe if I was going to stay in the country longer, I might consider this approach, but for my usage, I decided against this.
Opening a UK Euro account
There are several banks that will allow you to open an account which allows you to deal in Euros. One example is Lloyds, with their Sterling Premier International Account, which gives you the ability to spend in Euros, Pound Sterling or US Dollars, with a debit card for each currency. However, unless you have a balance of more than £2,500, you will have a monthly fee of £20, which makes this a rather expensive option.
The other problem with using a Euro account is that it doesn’t help if you travel to a country that doesn’t use the Euro. I only plan to be in Spain for three months, and then travel outside of Europe. Obviously I need a different solution.
Opening a debit/credit card with low foreign currency charges
The final option is to search for a card that doesn’t charge you all the extortionate fees that most banks charge when you’re abroad. The gold standard for this used to be from Nationwide with the Flexaccount, but a few years ago they put various charges on the account, and is now only available to current account holders.
There are a couple of cards now that are cheap to use abroad:
The Halifax Clarity credit card is a Mastercard, which should be accepted in most places, and has no charges for using an ATM abroad and the exchange rate used for any spending is the Mastercard wholesale rate, which is possibly the best exchange rate you can get as a consumer. One thing to note is that cash withdrawals will get interest charged on them regardless of whether you pay the whole balance off in full every month. At the advertised 12.9% interest rate, this works out about £1 for every £100 you withdraw each month. If you don’t receive this lower rate, the 21.9% shouldn’t be too expensive. You should be able to reduce this by paying your card off more frequently.
This Mastercard from Capital One is not quite as good value, with a 3% (min £3) on cash withdrawals and a higher 34.9% interest rate, but it does have a 0% loading on the exchange rate, so card purchases will be good value, and it has a 0.5% cashback on all UK purchases, which makes it better value if you are spending a lot of time in the UK as well as abroad, and saves you having multiple credit cards.
As I don’t intend on being in the UK much over the next year, I decided to go with the Halifax credit card. I plan on only carrying this card around with me day to day, and leaving my UK cards in the apartment, giving me an emergency source of cash if I lose my wallet.
Update: 16th January 2014
Lloyds now provide a Mastercard and American Express card which not only provides no foreign transactions fees and use the mastercard or amex exchange rates, but they allow allow you to earn Avios points, which you can use towards free flights with British Airways or any of the OneWorld partners. They do charge you for cash withdrawals though.
Sadly, there is no sign up bonuses for Avios points like some cards do, so you can not use this card to kick-start your air miles balance, but there is double points on your Amex spend in the first six months. You get 1.25 Avios points for every pound you spend on the Amex card and 0.25 points for every pound spent on the Mastercard.
I’m in the process of applying for this card, and I will update you with my experiences at some point in the future with how I get on with it. My plan is to use this card for purchases, and keep the Halifax card for cash withdrawals. It will be good to have an additional Amex card in my pocket, although it would be useful to have a Visa too.