How to travel and avoid costly international bank fees

At this time of year and with school holidays looming, you’re probably feeling the call of a ski slope across the ditch… or a sun lounge in Asia.

What you don’t want is to pay unnecessary currency fees and bank charges, on top of your not-so- insignificant overseas travel costs.

Debit cards and smartly used credit cards are the clear winner when using money to travel for your winter break in the sun, new research has found.Credit:Fairfax

Exclusive research for Money by comparison website Mozo has found travellers who are planning to head overseas to beat the winter blues could end up forking out $385 in over-the-odds bank fees by choosing the wrong travel money option.

Overseas automatic teller machines and foreign exchange fees represent the biggest hit to the average traveller’s hip pocket.

The study modelled an Australian traveller spending $10,000 overseas who makes four ATM withdrawals and 20 purchases, and found a $385 difference in fees and charges between cards from the best and worst banks.

For debit cards, the highest ATM withdrawal fee was $5.50, while the highest foreign exchange fee was 3.65 per cent. That means for an ATM withdrawal of US$200, you could be charged up to $15.40 in fees. QBANK and Coastline CU are among the worst offenders.

For credit cards, the highest foreign exchange fee is, again, 3.65 per cent.

For a £200 purchase, you could be charged up to $13.61 in fees. Here, BankVic, bcu, QBANK (the Bluey Card) and Qudos Bank are all get no kudos.

Mozo compared 314 travel money products from 89 providers to see which are the cheapest.

It found at least five debit cards no longer charge foreign exchange fees, including Citi Global Currency Account, HSBC Everyday Global Account, ING Orange Everyday, Macquarie Transaction Account and UBank USaver Ultra Transaction Account.

And a far higher 13 credit cards don’t charge these foreign exchange fees.

Visa and Mastercard set their exchange rates daily, while pre-loaded travel cards and cash "converters" use the varying interbank/market exchange rate – at the time you convert.

Either could be slightly better or worse, depending on luck.

With credit and debit card providers competing so fiercely with more traditional money exchange operators and newer pre-paid travel cards, what’s usually the cheapest way to access cash?

To answer this question, Mozo looked at the options for a traveller heading to Thailand.

Post office, banks, exchange booths

They like to advertise zero per cent commission on overseas cash but you have to look closely at the exchange rate you are getting.

At the time of Mozo’s analysis, Australia Post was paying 8.1 per cent less value than the market rate, Visa or Mastercard, while Travelex was paying 6.4 per cent below it and CBA, 5.8 per cent.

Prepaid travel cards

These offer similar exchange rates to the older-school options above, however you have the benefit of not carrying cash around. Some fees to watch out for include:

Card opening fee – normally free but up to $15

Reload fees – normally free but up to 1.1 per cent of load amount

Closure fees – normally free but up to $10

ATM withdrawal fees – Sometimes free but normally about $2 each.

Debit cards

You could just as easily use (most) debit cards overseas, preferably the foreign currency exchange fee-free ones listed above.

What about the rest?

You normally pay a 3 per cent premium of the purchase/withdrawal value, converted to Australian dollars using the competitive Visa or Mastercard scheme rates – this "margin" is what’s typically known as the foreign exchange conversion fee.

There are standard ATM withdrawal fees, normally $3 to $5 dollars, although many accounts waive these, too.

Credit cards

Most will charge the 3 per cent foreign exchange margin on the Visa/Mastercard exchange rate. The ATM fees will be as for debit cards.

However, here’s a trick with using credit cards.

If you pre-load them with cash and treat them like a debit card or travel card, you should not be hit with a cash advance percentage payment on top of this.

For example, Westpac’s EarthBlack card will charge you just $2.50 per withdrawal, as opposed to a $5 fee and 2 per cent of what is withdrawn.

If the money’s not there though, cash withdrawals will usually also attract the cash advance percentage penalty, plus a punitive interest rate from the get-go… that last bit, just like in Australia.

Debit cards and smartly used credit cards are the clear winner for travel money.

Travel money tips and traps

Prepaid travel cards

• You can fix your exchange rate before you leave. These help you stick to your budget

• Watch out for reload fees, ATM withdrawal fees and cross-currency conversion fees

Credit cards

• Some cards waive currency conversion fees

• Can be good for large overseas purchases

• Can offer rewards and free travel insurance but you need to remember to activate it by making the appropriate spend prior to departure, which might be $500 per person on flights or overseas accommodation. Check!

• Watch out for ATM fees, cash advance fees, annual fees and negative changes in exchange rates

Debit cards

• Some cards have small or no ATM withdrawal or currency conversion fees

• Watch out for negative changes in exchange rates that can end up costing you more

Nicole Pedersen-McKinnon delivers Smart Money Start in schools and her free 5-week S.M.A.R.T. Money Makeover videos online at themoneymentorway.com

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