Credit cards tend to win hands down for convenience and budgeting but the charges for overseas usage can be steep and providers have been steadily pushing these fees up in recent months.
Fees which hurt
When you use a credit card abroad, most providers charge a loading fee of between 2.5% and 3.0%. So a £100 of US dollar spending on a card with a 3% loading fee would actually cost you £103 - this extra cost can really mount up over the course of a holiday.
However, not all providers levied overseas fees making certain cards a great choice for travellers. But the options have dwindled in recent months. Thomas Cook recently axed the fee-free aspect of its card for overseas spending. It now charges 2.5% for usage abroad.
And Nationwide, which was the white knight when it came to overseas usage fees on credit and debit cards because it didn't levy them, has recently changed its strategy. It now charges 0.84% if a customer uses their card outside the EU and this will rise to 1.0% in July.
While still significantly lower than most providers charge for overseas card usage, Nationwide's decision to start imposing a fee was disappointing. It is therefore good to see Abbey stepping into the breach to offer a new fee-free card for those heading abroad.
Kevin Mountford, head of banking at moneysupermarket.com, said: "This is great news for holiday makers. The lack of a charge for use abroad is a key feature, especially as Nationwide, which was the key player in this market, recently began levying charges for transactions outside the Visa Europe region."
What are the best options?
It pays to do a bit of homework and ensure you pack the best value plastic to take on vacation. A family spending £2,000 on holiday could pay an extra £60 just for using their card if they pick the wrong deal.
The Abbey Zero card is obviously well worth considering. As well as not levying overseas charges, it offers a three-month interest free period on purchases, which gives you a bit of time to pay off that holiday spending. There is also a 12-month interest free period on balance transfers (albeit you'll be charged a 3.0% balance transfer fee) but if you're getting this card for use overseas, don't be tempted to use it to transfer a balance on to as well.
Like most providers, Abbey uses a payment hierarchy, whereby the cheapest debt is cleared first. So if you use the Zero card for purchases and a balance transfer you'll start accruing interest at 18.9% on any purchases you've made after the first three months It's also worth noting that there are better balance transfer deals to be had - Virgin for example, is offering a 16-month interest free period on balance transfers.
Going back to overseas usage, the Post Office Platinum card is another good option as it is also fee-free abroad. And if you are over 50, the Saga card also warrants consideration. However, Saga's card is only fee-free in Europe - customers are charged 1% if they use it elsewhere in the world.
Don't use a credit card for cash withdrawals
One thing to remember though is never use a credit card to withdraw cash from an ATM - most card providers charge a cash withdrawal fee. The Abbey Zero card doesn't which is another feature that makes it stand out from the rest of the market. However, you'll still be making a mistake using the card for this purpose. All credit cards start charging interest from the day a cash withdrawal is made so interest can't be avoided, even if you clear your balance in full each month. Also, the rate of interest tends to be significantly higher that the rate charged on purchases or balance transfers. The cash withdrawal interest rate on the Abbey Zero for example, is 27.9%, compared with 18.9% on purchases.
Watch our video 'Avoid credit card interest and fees' for more on this.
Inform your card provider before you travel
Also, before you head off on holiday give your card provider a call to notify them that you're going abroad. Overseas card fraud has risen dramatically and as a result more card issuers are stopping credit and debit cards if they see unusual or foreign spending. But if you let your credit card provider know you're going away, it will reduce the change of this happening.
Disclaimer: Please note that any rates or deals mentioned in this article were available at the time of writing.
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