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How do credit cards with no foreign transaction fees work?

How to pay for your holidays

Using the right credit cards to pay for your holiday can make your money go further and even get you some great rewards and freebies.

There are a few ways a credit card can help with paying for a holiday, you can spread the cost with a 0% purchase card, enjoy an additional level of purchase protection, earn frequent flyer miles or get market exchange rates when you’re overseas.

Time for a holiday?

Make your money go further with credit card that earns you frequent flyer miles, or is free to use overseas.

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Travel cards can offer free cash withdrawals, good rates on travel money, reward points for flights or discounts on travel insurance.

But note,  there are two types of travel card, airline cards, and no foreign transaction fee cards. Airline cards, typically wont give you free overseas spending but will give you rewards for flying on certain airlines like British Airways.

Paying for flights: cash or credit card?

Some airlines and other travel companies, including ones that offer ferry and train journeys abroad, tend to add on a credit card surcharge at the checkout when you pay for flights or other journeys with them.

From January 2018 this surcharge is illegal in the UK, and you should report it if you are charged extra to pay by card.

Extra protection

With a credit card you are offered more protection than if you paid by cash or with a debit card. This is because of the Consumer Credit Act 1974, which protects the consumer on any purchase paid with a credit card, valued between £100 and £30,000.

This protection means that if an airline or travel company, goes bankrupt, or even cancels the flight and refuses to return your money, you can go back to your credit card company and ask them to refund you.

If you paid for the flights with cash, then you would most likely have to default to the terms and conditions of the airline you purchased them with.

Earning frequent flyer miles

Some credit cards also offer airmiles, frequent flyer miles or Avios points. So if you pay for flights, and in many cases, everyday items at any shop, with that credit card, then you can earn Avios or specific airline points, which you can then use to redeem on future flights.

If you earn enough, can sometimes let you buy a flight for ‘free’, whereby you only have to pay the taxes and other charges, which usually works out considerably less.

However, each destination sets its own taxes and charges (and they can be very high or quite low depending on where you go), which you always have to pay. The points will only deduct from the fee charged by the airline.

You can also sometimes use them to upgrade your seat to a premium one or first class.

Spread the cost

If you pay for flights with a 0% purchase credit card you can spread the cost over the course of one or two years.

A 0% interest purchase credit card won’t charge you interest on new purchases you make for a set period of time (the market leaders just over two or so years), but the interest will rise to around 18-20% after this period expires. Meaning you should plan to repay your balance before this time.

If it’s a dream once-in-a-lifetime holiday, and the flights will be a particularly large expense, a 0% car can be a great way to spread the cost, but it’s not wise to rely on 0% cards too much or too often, they’re best used for one off large expenses.

Also note that if you miss a minimum monthly repayment you could lose the 0% offer and start paying interest on your balance.

Want to spread the cost of a big purchase?

A 0% purchase card could help by charging no interest on new purchases for a couple of years.

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How to pay for accommodation

Just like with airlines, many hotels and other accommodation providers did traditionally add a surcharge for using a credit card, again this is now illegal in the UK (and as the UK rules were based on an EU directive, this should also be the case in Europe).

Comparison sites offer many good deals on hotels but make sure to do your own research and read reviews to make up your mind.

If you’re looking to get a cheaper deal on a place to stay on holiday, take some time to do your research and look into other methods. Beyond hotels, many hostels offer cheaper prices, with some of them offering private rooms, and several new companies will allow you to rent private rooms or even whole homes from other people.

As with flights (and all other large purchases) you can enjoy enhanced refund protection if you pay with a credit card, which can offer peace of mind if you’re paying for your hotel upfront.

Some credit cards also offer reward points that can be redeemed in major hotel chains, it’s worth checking if your credit card offers these, or consider applying for a card that will give you them if this could be of interest (traditionally American Express offered the most competitive hotel rewards, but many other credit cards also have schemes).

Foreign exchange and spending abroad

When it comes to spending abroad, having cash in your pocket is always useful for the little things like paying for a taxi or leaving a tip in a restaurant.

Cash is also generally the cheapest way to pay for things abroad, but it’s also less safe to carry around bundles of it in your pockets constantly.

So if you plan to buy some cash, try to do it a few weeks in advance so you can monitor whether the exchange rate is likely to go up or down. It also gives you a bit of time to find the best rate.

Note airports usually carry the worst rates on foreign exchange, so it’s wise to avoid waiting until the last minute to get cash.

When you’re abroad, spending on most debit card and credit cards will carry an extra charge called an overseas usage or foreign purchase fee, which is a usually 2-3% of each transaction.

Travel credit cards with no foreign purchase fees fees

You can find several credit card that don’t charge any foreign transaction fees.  These are often listed as travel cards, but be careful not to confuse them with an airline reward card, which might be good for getting flights but not paying for things overseas.

Travel credit cards with no foreign purchase fee will exchange at the Mastercard or Visa exchange rate, which is usually ‘near perfect’ exchange rate. However, this exchange rate will only apply for purchases, not withdrawing cash (more on this below).

If you lose your credit card or it gets stolen abroad you can always ask the credit card issuer to put it on hold and send you a replacement, many have emergency support numbers to call to help with this.

Are you heading off on holiday soon? Read up on how to use a credit card abroad before making any purchases.

Withdrawing cash overseas

It’s also important to note, that if you need emergency cash while you’re abroad, use your debit card, not your credit card. You might be charged a 2-3% overseas usage fee, but it’s still better than a credit card.

Even the travel abroad credit cards with 0% usage fees still charge you the interest (APR) daily from the moment you take the money out of the cash machine, as well as an additional cash advance fee.

A few banks offer options for fee-free cash withdrawals overseas, for example Metrobank enables you to enjoy fee-free cash withdrawals and spending across many European countries. But in all cases read all the terms and conditions.

Prepaid cards can also be useful. These are cards that you load with a money before you go on holiday. They offer more security than carrying just cash, but not the same amount of purchase protection as you enjoy with a credit card.

However, they usually have competitive exchange rates that often beat the high street foreign exchange companies.

Travel insurance and other costs

It’s usually better to be safe than sorry and to get travel insurance before you travel.

You can probably save money if you know how many holidays you plan to go in one year and where they will be. This way you can buy an insurance plan for a year, which normally works out cheaper than buying single trip plans each time.

Many comparison sites can help you see the differences between the levels of cover you will get, but it’s most important to look at the level of cover you will feel most comfortable with having while on holiday.

There are some unexpected costs that could come up like Dynamic Currency Conversion fees. This is a fee that gets added to your bill when you pay by credit card, and the server converts the total back to your currency.

If you’re abroad and you’re asked to pay in pounds sterling or GBP, always ask to pay in the country’s currency to avoid the Dynamic Currency Conversion fee.

Time for a holiday?

Make your money go further with credit card that earns you frequent flyer miles, or is free to use overseas.

Compare credit cards

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