Travel money cards vs credit cards vs debit cards

The potential pros of travel money cards for travel include the ability to lock in your exchange rate, load multiple currencies onto the one card and have more control of your spending.

• Exchange rate locking: When you put funds onto a travel money card, your exchange rate is locked at the time the funds are loaded on, meaning you will not need to worry about fluctuating exchange rates once you get to your destination. Some cards allow ‘top ups’ (adding money to the card) while travelling, in which case the exchange rate would be applied at the time of the ‘top up’ to the extra amount you put on the card.
• Ability to load multiple currencies: Some travel cards allow you to upload up to 13 currencies onto the one card, which is convenient if you plan on travelling to multiple destinations, as you won’t need to keep exchanging currency.
• Potential to avoid currency conversion fees: If you use a credit or debit card while travelling, your institution may charge you currency conversion fees for each transaction. With a travel card, your funds will already be in the currency of the country in which you are travelling, so this may be avoided.
• Potential to be more in control of your spending: Once you have loaded a certain amount of money onto a travel money card, you may be able to set your budget more confidently, knowing how much money you have access to, and thereby potentially limiting the temptation to overspend.

There are a number of things to be aware of when it comes to travel money cards. These can include unfavourable exchange rates, extra fees and charges, and/or long wait times to transfer money.

There may also be concerns about pre-authorisation, which could restrict where you can use the cards and when you have access to your funds.

• Fees and charges: In general, there can be numerous fees associated with travel money cards. These could include fees for:
  • purchase and issue of the card
  • loading and reloading currency
  • cashing out the balance of the card
  • withdrawing funds at ATMs
• Long load times: When you transfer money to a travel card, the lead time for the funds to appear can vary widely – in some cases, it can take up to three days for the funds to become available for you to spend. You may therefore need to account for this or plan ahead, transferring money several days in advance to ensure it’s available when you need it.
• Limited pre-authorisations: Some services such as hotels and hire car companies use pre-authorisation when you book. This means putting a specified amount of funds on ‘hold’ in advance of the actual purchase being made. Some merchants may not accept travel money cards for this purpose, and may require a credit card instead.
• Funds being put on hold: Even if your merchant does accept travel cards for pre-authorisation purposes, you may run into another concern thanks to the fact that the ‘hold’ placed on funds can last for several weeks. This means that even after payment for your hotel stay or hire car is debited from your travel card, you may be delayed in accessing your funds.

→ Related: Travel loans: What are your finance options?

The potential pros of using credit cards for travelling include convenience, as some cards are widely accepted around the world, the potential to set a more flexible budget for yourself, more convenient pre-authorisation and the potential for low pre-authorisation time, as well as some of the extras that lenders can throw in, such as travel insurance.

• Credit cards are widely accepted: An advantage of credit cards is that they are widely accepted overseas. This means that if you are travelling with a Visa or Mastercard, for example, that you use in Australia, you may well have the convenience of being able to use it overseas, as vendors will typically accept these in a wide variety of locations. You may need to check if your vendor accepts cards such as Amex or Diners, and if there is an additional fee for this.
• Potential for a more flexible budget: Depending on the limit of your credit card, you may be able to travel with a more flexible budget, and if any unexpected surprises or expenses arise, you will not need to deplete your cash reserves to pay for them. But this would also include taking on extra debt that has to be repaid, as using a credit card is a type of debt.
• More convenient pre-authorisation: Many providers such as hotels and hire car services prefer taking pre-authorisation payments on a credit card, and in general terms, the turn-around time for pre-authorisation payments is shorter with a credit card. The funds may only be on hold for up to a week (depending on your provider and the merchant), whereas with a debit card, they may potentially be put on hold for several weeks.
• Availability of extras: Some credit cards come with extras that are tailored towards travellers – they may come with travel insurance included, for example, or they may offer interest-free days, frequent flyer points, cashback and other deals with participating merchants, and even perks like flight upgrades. It may even be the case that your existing credit card has some features that could be useful for travellers.

While credit cards can offer convenience when making purchases internationally, it’s worth keeping in mind certain possible downsides such as currency conversion and international transaction fees, the potential for higher annual fees, and the temptation to spend up to your credit limit.

• Currency conversion fees: One thing to be aware of when using credit cards internationally is currency conversion fees. You may be charged a fee that is a percentage of the transaction cost (which, after viewing different providers’ terms and conditions, could be as high as 3% per transaction or more), on top of the exchange rate. It may therefore be worthwhile to check with your card issuer if there are certain conditions or types of transactions under which fees will be waived, or if there is a credit card available that does not come with currency conversion fees.
• International transaction fees: While most credit cards come with the ability to spend money internationally, it is worth keeping in mind that many will also charge you international transaction fees, which is typically worked out as a percentage of the purchase put on the card (which, after viewing different providers’ terms and conditions, could be as high as 3% per transaction or more). While credit cards allow you convenience when making purchases internationally, it is important to keep these fees in mind when making transactions.
• Temptation to spend available funds: While credit cards can be convenient for travel because they allow some degree of flexibility in spending up to your limit, it is also worth being aware of a potential temptation to overspend. With a credit card, you may spend more than you had budgeted for, telling yourself “it’s a later problem” as you swipe or tap away up to your credit limit (which could be much higher than your intended spending limit for the trip). It’s important to remember that the money you spend on a credit card will always need to be paid back, sometimes with interest.
• Higher annual fees: It is worth keeping in mind that, while some credit cards come with features that are tailored towards travellers, these cards may come with higher annual fees attached. For example, if a card offers no international transaction fees, it may be the case that the annual fees you’ll pay will be higher than the amount you would have paid in those types of transaction fees. It is therefore worth considering whether the benefit of the added features outweighs the cost in annual fees.

Some potential pros of using a debit card while travelling could include the fact that they are widely accepted, have the potential for cheaper ATM access, and could allow you to access all your funds in the case of an emergency.

• Debit cards are widely accepted: Much like credit cards, debit cards tend to be linked to providers such as Visa and Mastercard, making them widely accepted at merchants around the world, which means that using them can be convenient.
• Potential for cheaper ATM access: In general terms, international ATM access can be cheaper with debit cards than credit cards if you need to withdraw cash, particularly if your provider has a partnership with an international ATM network. Check with your financial institution.
• Access to all your money: If you have a debit card with you, then you will have access to your full savings, which could potentially be useful in an emergency situation or if you find yourself unexpectedly in need of cash.

Possible downsides of debit cards for travel include international transaction and currency conversion fees, the potential that some merchants may not accept them for pre-authorisation purposes, and the possibility that, even if they do, your funds may end up on hold for an unexpected period of time.

• International transaction fees: As is the case with credit cards, if you plan on using a debit card for everyday transactions, you may be charged transaction fees, unless your provider offers an account that does not charge these fees, or will waive them under certain circumstances. You may also be charged currency conversion fees by your provider if paying with a debit card.
• Limited pre-authorisations: In the same way as some services such as hotels and hire car companies may not accept travel money cards for pre-authorisation purposes, some of these merchants may not accept debit cards for this purpose either.
• Funds being put on hold: Likewise, even if your merchant does accept debit cards, you may run into another concern thanks to the fact that the ‘hold’ placed on funds can last for several weeks. This means that even after payment for your hotel stay or hire car is debited from your debit card, you may be delayed in accessing your funds.

While cash may be increasingly outdated in today’s world, there may be some situations in which travelling with it could be beneficial. There are some economies that still rely on physical currency, while you may also find that travelling with cash could help you stick to a budget and avoid exchange rate fluctuations and fees.

• Some countries still rely on it: In some cases, travelling with physical local currency may be the most convenient option, given that some countries are still heavily reliant on cash. According to Merchant Machine, you may well find that a high proportion of transactions are still made in cash in destinations such as Peru and Vietnam. Romania is the nation with the highest proportion of cash usage in the world, while Egypt, Kazakhstan, Bulgaria and Ukraine make up the top five.
• Avoiding fees and exchange rate fluctuations: If you exchange your cash at a favourable rate, you may be satisfied with the amount you receive, and you won’t be affected by fluctuating exchange rates and currency conversion fees as you would be if you were making frequent transactions on a card where these fees are not fixed.
• Setting a budget: If you wish to set a particular budget for your trip, then travelling with cash might be one way to help you stick to it, as you may be less tempted to overspend. Even then, though, it may be worthwhile to travel with a card or with access to funds digitally for emergencies and situations where cash is not accepted.

There are a number of potential drawbacks to travelling with cash, including the possibility that you may end up locked into an unfavourable exchange rate, the reluctance of merchants to accept cash in this day and age, and the overall lack of security that is part and parcel of physical currency.

• Getting an unfavourable exchange rate: If you are planning to use cash as your primary currency on your trip, you may find that when it comes time to exchange your money, exchange rates are unfavourable. This means you could end up with a lower amount of money than what you had hoped for, and you will not be able to take advantage of a more favourable exchange rate if it improves during your trip, as you will already have changed your money for local currency.
• Reluctance to accept cash: During the COVID-19 pandemic, many retailers moved away from cash transactions towards contactless and card payments, to limit the handling of physical money. As a result of this, many retailers may still be reluctant to accept cash, or may state that they prefer card transactions.
• Cash is rare in some destinations: While cash is still commonly used in some economies, it is relatively rare in others. For example, according to Merchant Machine figures, only 3% of transactions in Norway are made in cash.
• Lack of security: If you lose a card overseas or if you fall victim to theft, you may well have the opportunity to call your issuer and cancel it, and have access to your funds restored. If you lose cash or if it’s stolen, then you will likely have no backup, meaning that cash presents a security risk, especially in larger amounts.

If you’re planning a trip and would like to consider your options, you can always check out Canstar’s Travel Credit and Debit Cards Star Ratings for some cards that offer value to Aussie travellers.