Unlock Premium Data: Up to 50% Off InvestingProCLAIM SALE

Cash versus credit cards: How should you spend your money when on holiday?

Published 24/03/2019, 08:35
© Reuters.

Determining whether to use a credit card or cash when travelling internationally can be difficult. There are a variety of aspects to consider, such as security, convenience and the potential for fees to make one method more costly than another.

As is often the case, personal circumstances and individual preferences could dictate the best option. However, I believe that having both cash and a credit card available when abroad could prove to be the most logical move for most consumers.

Keeping an eye on security For many people, the idea of taking large amounts of cash on holiday is undesirable. It poses a security risk, since travel insurance often only covers cash losses up to a specific amount. Losing a wallet or purse, for example, could be very costly.

In contrast, a credit card provides far greater security than cash. If lost, it can easily be cancelled, and a new card promptly issued. A credit card also provides protection in case goods or services are faulty or not as advertised, if the amount spent is over £100.

Of course, credit cards are not without their security limitations. For example, it is a good idea to always keep a credit card within sight in order to prevent it from being cloned.

What are the costs? Using a bog-standard credit card internationally can be costly due to a non-sterling transaction fee. This fee can be as much as 3% and is applied by the card issuer for any transaction that is not in sterling. Similarly, withdrawing cash from a cash machine outside the UK can be relatively costly. Not only is interest charged on cash withdrawals, but there could also be withdrawal fees.

Although obtaining travel money before a trip may appear to be cost-effective due to the lack of commission costs, the rates offered to consumers may be lower than the actual rate of currency exchange that the company obtains. This is to provide a ‘spread’ for the currency exchange company, and allows it to make a profit without charging commission.

As such, the ideal solution in terms of costs could be to have a credit card that does not charge transaction fees when used internationally. There are a growing number of such cards, with many of them not having annual fees. Therefore, it may be worth having such a card, possibly as a second credit card that is exclusively used for international transactions.

Some credit cards may also offer a more competitive exchange rate than is available when obtaining cash before travelling. For example, the Halifax Clarity Credit Card uses the Mastercard (NYSE:MA) rate of exchange and does not add any spread or charges to it at the time of writing.

Taking a balanced approach Of course, having some cash to hand when travelling internationally can be a good idea. As in the UK, some stores may not accept credit cards. Therefore, having a modest amount of cash could help an individual to pay for goods and services in some circumstances.

For the majority of spending when abroad, though, having a credit card that does not have foreign usage transaction fees could be the most logical option. Not only does it provide greater security and convenience, it may also be possible to obtain a competitive rate of exchange when compared with cash.

MyWalletHero, Fool and The Motley Fool are all trading names of The Motley Fool Ltd. The Motley Fool Ltd is an Appointed Representative of Richdale Brokers & Financial Services Ltd, (FRN: 422737) for acting as a credit-broker, not a lender, for consumer credit products.

The Motley Fool receives compensation from some advertisers who provide products and services that may be covered by our editorial team. It’s one way we make money. But know that our editorial integrity and transparency matters most and our ratings aren’t influenced by compensation. The statements above are The Motley Fool’s alone and have not been provided or endorsed by bank advertisers. The Motley Fool has recommended shares in Lloyds (LON:LLOY), Tesco (LON:TSCO) and Barclays (LON:BARC).

Motley Fool UK 2019

Latest comments

Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2024 - Fusion Media Limited. All Rights Reserved.