Co-author: TJ Ryan
If you’re planning to pack your credit card along with your other payment options for a special overseas trip, think about where and how you’ll use the card – for maximum benefit and minimum hip pocket pain.
The last thing you want to do is come home to a credit card debt that could easily have been avoided with a little forward thinking.
Some of the things you need to think about before using a credit card overseas include…
What is the currency conversion fee on credit cards?
Sometimes known as foreign currency conversion fee, foreign transaction fee or cross currency conversion fee, this is the main culprit in hiking up costs. It is charged when your credit card converts Australian dollars into a foreign currency to pay for a purchase or make another transaction.
Canstar’s research in 2016 found that currency conversion fees range from 0.00% to 3.65% of the transaction value (in Australian dollars), with the average amount charged being 2.80%, for every $1,000 spent overseas.
The easiest way to avoid this charge is to use a credit card that has no conversion fee.
How much do ATM fees cost overseas?
Canstar has rated 190 credit cards with international access from 66 providers, and found that (as many overseas travellers would know) foreign ATM fees can be quite substantial, with a fixed fee and a percentage-based ATM fee charged at once, often with a currency conversion fee added on top.
Unless you transact through your bank’s preferred global network, that is. So before you leave home, jump online and check out exact locations of your bank’s ATMs in the country you will visit. Prior knowledge will save you money and stress. More than a few dollars per withdrawal can add up to a lot of money on even a short overseas break!
How much does it cost to get cash out using your credit card?
Cash advances (withdrawing cash from an ATM) using your credit card should be avoided at all costs, except maybe in an emergency. Each time you use your credit card to withdraw cash from an ATM, there’s a host of fees you’re likely to incur. Cash advance fees range from $0 to $5 for fixed fees, and 0% up to 4% for percentage-based fees.
It’s all topped off with an interest rate that’s charged from the day you make the withdrawal.
There is a way around this – preload money onto your credit card before you leave home, so that your account is in surplus. This way, you won’t pay the hefty interest rate – but you will still pay a cash advance fee and local and international ATM operator fees.
Baffled Benjamin doesn’t do his research before hopping on a plane to Japan, and he’s surprised to find when he gets there that most businesses still operate in cash. He left his debit card at home so that he couldn’t lose it overseas (because he doesn’t want people having access to all his savings), but he did bring his credit card with him.
Well never mind, he thinks to himself, I should be able to get some Yen out in cash using my credit card in the ATM.
On day 1 of his trip, he uses his credit card to withdraw 78,000¥ JPY from the ATM (about $1,000 AUD). Benjamin’s card immediately charges a currency conversion fee of 3% and an ATM fee of 3%. Together these two fees amount to 6% of the amount, or 4,680¥ JPY (about $60 AUD).
In the background, his credit card immediately begins charging him interest on the cash advance at a high rate of 21%. That’s much higher than his usual interest rate of 15%, but he doesn’t think to check until he pays his credit card bill online from his Tokyo hotel two weeks into his trip.
Assuming that Ben doesn’t make any more cash withdrawals, his bill will include the 82,680¥ JPY (about $1,060 AUD) plus interest. That’s a lot of money down the drain for poor old Baffled Ben.
It goes without saying that overseas trips are expensive – so why pay extra to access your money overseas?
Whether it’s at the point of sale, the ATM or at the currency exchange office, intelligent travellers can save heaps on fees and charges when they’re overseas. The key is being aware of the fees you can avoid and how to minimise the cost of the ones you can’t.
To keep things easy, visit our comparison pages, which highlight each card’s currency conversion rate, ATM withdrawal fee, interest rate, cash advance interest rate, annual fee, and more.
You can find out more about how travel credit cards work in our annual Travel Credit and Debit Card star ratings report.