Manage Travel Money Abroad
Credit, Debit, Cash, Travel CurrencyYour journey will take you to many countries, each using different local currencies. So how do you plan to manage your currency ?
The options are:
- Travellers Cheques
- Credit Card
- Debit Card
- Pre-Paid Debit Cards
A broad way to protect oneself would be to use most / all of the above options to spread the risk. It is advisable to convert a portion of your cash to US dollars as this is the currency that you will not have problems with (in developing countries). As this currency is widely accepted by money changers at favourable rates. US Dollars can also be used in some countries as currency in parallel with the local currency; Cambodia is one such country where most things are charged in US Dollars and pocket change is handled in local currency. Keep aside 200-300 USD as an emergency.
Taking some of your funds in the form of Travellers cheques (especially for American and Australian currencies) is beneficial for the following reasons:
- Use the cheques as cash in these countries with any change returned to you in cash.
- Added security against theft with travellers cheque numbers (provided you have taken a note of the numbers).
- Keep aside a few hundred US Dollars in travellers cheques for an emergency.
However, if you exchange travellers cheques out side of the country (i.e if you have travellers cheque for US Dollars and attempt to exchange them in Brazil for Reals), the exchange rate charged by the bank / money changer will be poor and you will lose money.
In any case, if you prefer not to use Travellers cheques, an alternative method which offers the same security is a Pre-paid Debit Card. This system replaces any stolen pre-paid cards and keeps the funds in-tact. Although this service is available for a small fee it removes the hassle of keeping track of travellers cheque numbers (other then your debit card details).
Choose a credit card that minimises the potential charges that are currently in place, these are:
- Load fee - this is made up of a Issuer fee (Visa / Mastercard) and a fee that may be charged by the card provider
- Charge for Withdrawing cash using your credit / debit card
- Debit card penalties – you are charged a penalty each time you spend on a card. Normally it is cheaper to spend on a card then to withdraw local currency however in this case it may not be cost effective
- Interest rate charges for withdrawals – normally interest rates are charged if the amount on your credit card is not paid in full, however in this case, interest is charged from the moment you withdraw money.
Choosing the right credit card, and paying off your balance in full each month (which I can’t stress enough!), can work out cheaper then exchanging your currency for local currency. This is due to Visa / Mastercard using the international exchange rate, for currency conversion, whereas the money changer will always provide a rate lower than this.
Here is a shortlist of credit cards on the UK market that is considered the best to use whilst on your travels:
Zero credit card - (no Withdrawal fee but charge interest from the
moment you withdraw)
- Halifax Clarity credit card - (no Withdrawal fee but charge interest from the moment you withdraw)
- Sainsburys Gold credit card - (£5 a month fee but no other fees) - for that £5 a month you get Travel Insurance covering 2 adults (under 65) and 6 children under 16 or 23 if they are still in full time education.
- Post Office credit card -(No fee on purchases, but minimum £3 on withdrawals)
(only good for European travel)
These cards charge little or no load fee, little or no withdrawal fee.
Most regular credit cards will charge you a fee for withdrawing funds but will only charge you interest if the sum is not paid in full. However some cards with no withdrawal fee will begin charge interest even if you pay your bill in full. They will charge interest on withdrawals from the moment it is made. Cards like this are Santander Zero and Halifax Carity. To avoid these interest payments, credit your credit card so it is a credit balance. If you then withdraw funds (in the credit balance) there should be no interest charged on cash withdrawals, thus costing you nothing.
The only decent debit cards on the market since Nationwide started to charge (although still better then most):
- Norwich & Peterborough Building Society - no fees but there are caveats:
Classic - Need your salary paying into this account (£500 / month
or they charge £5 a month unless you have £5000 sitting in the
account). Also a £5 fee if you have to dip into the approved
- Gold Light - Need to make a minimum of 5 transaction a month or you get charged £5 unless you have £5000 sitting in your account. Same £5 fee if you dip into the approved overdraft, but it has a ridiculous interest rate.
- Metro Bank - no fees but there are caveats:
- Only one branch in the UK (London)
- Have some concept of instant overdraft which which they charge are charged £10 for a paid item and £5 for an unpaid item for a maximum of 6 items. Also there is a charge of 15% AER when overdrawn.
These are handy cards to have if you can fulfill the conditions and do not go into overdraft.
Pre-Paid Debit Cards
These are convenient alternatives to Travellers cheques. They are generally cheaper than most Credit and Debit cards (but don’t beat the ones mentioned above). These are a good for those that cant get the credit cards mentioned above. There is a cost associated to acquire these cards (an application fee) and a cost of not using them. CaxtonFX, Travelex, FairFX are some companies amongst others who offer pre-paid cards.