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Ask an Expert: are prepaid cards the best option for spending overseas?

Find out how to prepaid cards, credit cards and debit cards stack up

Ask an Expert: are prepaid cards the best option for spending overseas?

Each week, the Which? Money experts answer your financial queries. You can submit your questions to money-letters@which.co.uk, or via our Facebook or Twitter pages.

Q:  I’ll be going on holiday soon and would like to know the best ways to spend while I’m abroad. I’ve used prepaid currency cards in the past, but have found that they’re not always practical as I wasn’t able to use them everywhere. For example, several petrol stations refused to accept them.

Submitted via Which? Money Magazine.

A: Many of us look forward to visiting loved ones or escaping the cold this Christmas – but working out how to manage day-to-day expenses abroad can be challenging.

Unexpected circumstances often pop up when travelling, so make sure you have a range of payment options – including  a small amount of cash, as well as a credit or prepaid card.

Which? explains the best way to manage your money when planning a trip, including prepaid, credit cards and debit cards, as well as buying currency.


Prepaid cards for spending abroad

Prepaid cards are a popular option for travellers. You can choose how much to load onto your card in advance, which may help you reign in your spending, and the fees are often lower than using a debit or credit card.

If you’re planning to spend euros or dollars, some prepaid cards allow you to load up on that currency before you leave. This ‘locks in’ the exchange rate, so you know how much you’re likely to spend and don’t get any unpleasant surprises.

Most of these cards charge a fixed ATM fee, though some will charge you a percentage of your withdrawal.

Alternatively, you can take out a ‘sterling prepaid card’, which allow you to pre-load pounds. This means the exchange rate will be decided at the moment when you make a withdrawal – which could be good or bad news, depending on how the pound performs.

The market-leaders for sterling prepaid cards are Monzo and Revolut. Revolut offers free withdrawals of up to £200 per month, then charges 2% on each transaction. Monzo currently offers free withdrawals, but plans to start charging in the new year.

Best credit cards for overseas

When using a credit card overseas, it’s important to watch for hidden charges. Some of the most common include:

  • A foreign loading fee of up to 2.99% every time the card is used
  • Interest charges incurred from the moment the card is used, even if the balance is fully paid off
  • A cash withdrawal of around 3% when you use an ATM abroad.

You may also lose track of how much you owe, as the exchange rate tends to change from day-to-day.

But some credit cards don’t charge for foreign usage – which could be an advantage for frequent travellers. Which? rates the best credit cards for foreign usage here.

Using a debit card

Of all your ‘plastic’ options, a debit card is likely to be the most expensive. Like credit cards, there are a number of unexpected charges which could add up during a week away, including:

  • A foreign exchange fee of up around 2.75%-2.99%
  • A cash withdrawal charge of around 2%
  • A ‘penalty fee’, which some debit card providers levy on every transaction

If you have to use your debit card, consider making a single large withdrawal at the start of your holiday, rather than using it over-the-counter. But the percentage fees on a larger transaction may be hefty, so work out the likely fees beforehand.

It’s also wise to tell your debit card provider that you’re planning to be overseas, to avoid having your card blocked for ‘unusual activity.’

If you do want to use a debit card, Starling Bank charges no fees for overseas transactions worldwide, while Metro Bank charges no fees in Europe – and a number of other providers offer reasonable deals.

Buying foreign currency

Regardless of how many cards you have with you, always carry a bit of cash. Card payments are not accepted on transport or in retailers and restaurants in many countries – including some that may surprise you.

It’s also handy to have a cash reserve in case your card is stolen, goes missing or gets blocked by your bank.

When buying travel money, it’s important to shop around for the best deal. Tourist hotspots – especially airports – are often likely to offer the worst exchange rates. Often currency dealers will allow you to haggle, so don’t be afraid to push back on a low offer.

A number of services allow you to buy currency online before you travel. Often they offer good rates and the convenience of picking up your cash at the airport. But these services aren’t regulated by the FCA – so if they go bust, you may not get your money back and there are less safeguards against fraud.

Which? Limited is an Introducer Appointed Representative of Which? Financial Services Limited, which is authorised and regulated by the Financial Conduct Authority (FRN 527029). Which? Mortgage Advisers and Which? Money Compare are trading names of Which? Financial Services Limited.

Please note that the information in this article is for information purposes only and does not constitute advice. Please refer to the particular terms & conditions of a provider before committing to any financial products.

Categories: Credit cards & loans, Money

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