The Australian, Wealth:
YOU’RE on holiday and haven’t got a care in the world. But at the back of your mind there is a nagging doubt.
How much will I be charged for using my credit card abroad? Should I use the ATM, or would travellers’ cheques have been the best option? Will my free travel insurance cover me?
These are questions that should be considered and answered in the months leading up to a big trip for the best possible outcome.
Exactly where you are in the world will influence what product you use.
In the outer reaches of Laos, cash is the only option.
But on the French Riviera or at Canada’s Whistler ski resort there is ready access to ATMs.
Credit card charges can be compared at the foreign exchange site www.xe.com/ccc/.
But it is difficult at the point of sale to compare exchange rates, or to access details of the exact fees and surcharges that the banks and credit card companies charge.
On an average holiday budget, choosing the right cards can save hundreds of dollars.
For most financial institutions, detailed terms and conditions are tucked away deep in their websites.
Commonwealth Bank, for instance, publishes a booklet Accessing your account overseas that talks about fees that have to be found through yet another booklet detailed in the small print.
Even the banks have problems with fees charged overseas.
In May this year, NAB refunded charges to customers who used overseas ATMS after the bank found a lack of disclosure on Cirrus and Plus card fees.
What hope is there for the traveller?
What you need to do is plan in advance to ensure you have the right product that can save money and offer insurance, concierge services and other benefits, according to Harry Senlitonga, analyst at financial information company Cannex.
Senlitonga says travellers should take a portfolio of products abroad to ensure they always have cash, and the appropriate insurance cover.
This will include a mix of cash, travellers’ cheques, ATM cards, credit cards and possibly pre-paid travel money cards.
He says to always take some cash and multiple cards for emergencies.
“If you bring multiple cards, like credit cards and ATM cards, store them in different places so when you lose your wallet you don’t use everything,” he says.
Often there are limits for daily withdrawals from ATMs, cash is insecure and credit cards have high fees.
Yet with all the technology available the travellers’ cheque remains a favourite, despite being one of the most expensive ways to take cash abroad, the price paid for their ease of replacement and security.
“People like travellers’ cheques because of the security of them. When you lose them the person who finds them can’t cash them and you can get a replacement,” Senlitonga says.
While most credit cards will charge about 2.5 per cent of a transaction they still remain one of the most flexible ways to shop abroad.
“Credit cards give you the most flexibility in purchasing something,” he says. “You don’t have to carry cash with you. You don’t have to worry to change Australian dollars to US dollars when you go to the US.”
Earlier this year, the Australian Consumers Association (ACA) analysed how much it costs to take money abroad or make overseas purchases.
For a $2500 transaction the costs varied from zero on a cheap credit card to $62.50 on a standard credit card.
For a pre-paid travel money card, where it costs 1 per cent to load cash onto a card and conversion fees are between 2 per cent to 5.95 per cent, the fees were between $75 to $170.
Foreign currency
When buying foreign currency it is worth shopping around and the rates vary from individual outlets of single institutions.
The ACA notes that commissions are 1 per cent at a minimum on top of the foreign exchange margin.
Its telephone survey found Travelex at airports charged between 4 per cent to 7 per cent on the transaction.
ATM cards
According Cannex’s Senlitonga the problem with withdrawing cash from an ATM is that daily limits apply — usually about $1000 — and on most bank accounts each withdrawal costs $4 to $5.
If your holiday cash budget is $5000 then five withdrawals will cost $25 for each additional one, on top of a possible international EFPOS charge and a currency conversion fee of up to 2.5 per cent of the total value — plus the money the bank makes from the foreign exchange margin.
Some accounts are much more expensive than others.
Only NAB professional packages (costing $375) and Citibank Plus waive the International ATM Charge.
On NAB’s Choice Package, Private Tailored Package, or to any account to which a NAB FlexiPlus Mortgage is attached, the 2 per cent that is usually charged on its ATM cards is waived.
This means overseas withdrawals for these NAB customers cost nothing.
Credit Cards
Few financial institutions advertise their overseas charges and only a few credit cards are designed to be low cost for overseas travel.
Infochoice general manager Denis Orrock says the cheapest way to spend abroad is with the Wizard Clear Advantage credit card.
Not only does the card promise no fees ever and offer a 4.99 per cent balance transfer, but it also waives all overseas currency charges.
An interest rate of 13.5 per cent is charged for cash withdrawals from the day of withdrawal.
But the card can be charged up with cash prior to a trip to avoid the interest.
That means no ATM fee, no withdrawal charges and no 2.5 per cent currency conversion fee. Most other cards charge an ATM fee of $4 to $5, plus another 2.5 per cent currency conversion fee.
“They (Wizard) don’t charge an ATM fee or a foreign currency conversion fee,” Orrock says.
“I’m still unconvinced when they designed that card that they had travellers in mind. The absence of those fees is quite significant.”
Wizard chairman Mark Bouris says: “For too long, hidden fees on overseas purchases and ATM withdrawals have dented Australian holiday budgets and we think it’s an expense holidaymakers shouldn’t have to pay.”
By comparison, Senlitonga says that most credit cards for ATM or over-the-counter cash withdrawals charge about $4 or 1.5 per cent of the total transaction, whichever is greater, and a 2.5 per cent currency conversion charge.
Just a 2.5 per cent currency conversion charge is made for purchases.
To put the costs into perspective, the difference in charges on a $5000 transaction between the nil no-foreign currency conversion fee Wizard card and one charging the standard 2.5 per cent is $125.
Prepaid travel money
Pre-paid travel money cards are a popular choice, with most major banks having their own branded version.
In February this year the ANZ Travel Card was launched, available in US, Australian and New Zealand dollars, euros and British pounds.
It costs a one-off $11 fee and 1.1 per cent to charge the card with cash. To take it up to its limit of $20,000 would cost $220.
Each ATM withdrawal costs $3.50 and point of sale transactions are free.
A spare card is issued and the replacement fee is $35. If the card remains inactive for 12 months a $4 a month fee is introduced.
The Travelex Cash Passport costs 1 per cent of the total value to issue.
Its ATM withdrawals are higher than ANZ at $3.75 and like ANZ there are no fees at the point of sale.