How to save money abroad: Credit cards vs debit cards

Last year was billed the year of the ‘staycation’ as cash-strapped Brits decided to holiday closer to home. But a combination of 2009’s dreary summer and this year’s freezing winter has led many of us to seek sunnier climes in 2010.

The travel industry association ABTA has reported that holiday bookings at the start of February were up by more than a quarter on this time last year, and the traditional Easter exodus looks set to be a big one too.

Online travel agency city-breaksdirect.co.uk also says that bookings for European short breaks for the Easter period are well up on last year’s figures.

But while splashing the cash for some guaranteed sun is one thing, nobody likes to waste money. Yet you could be doing so every time you use your credit card abroad.

Ditch the debit card

It’s a popular myth that all credit cards are expensive abroad, but in fact some debit cards can be just as pricey – or worse.

For example, it’s not just credit card providers that charge you for making a cash withdrawal overseas. Your bank will also make you pay to access your own money using your debit card – NatWest charges 2 per cent (£2 minimum) each time you make a withdrawal.

And did you know that some debit card providers actually charge you a spending fee to use your card abroad in shops and restaurants? Pay for a meal in Milan on your Maestro and you could be charged for the privilege – Halifax charges £1.50 for every overseas transaction.

That’s on top of the commission (or loading rate) every time you spend on your card or withdraw cash in a different currency. Lloyds TSB has a loading of 2.99 per cent, so every £100 you spend actually costs you £102.99.

The table below shows how expensive debit cards can be looking at the standard current accounts of the UK’s biggest banks.*

*Correct on 7 March 2010. Some banks will give you free cash withdrawals abroad from their own or specific ATMs.

Cheaper on credit

Of course, some credit cards have charges that are just as steep as those above. But if you choose wisely you can pay for goods on your plastic across the world without it costing you the earth.

• Nationwide’s Gold Credit Card for example is commission-free in Europe but charges 1 per cent if you travel further afield. It has a 2.5 per cent cash withdrawal fee (min £3) and charges 27.9 per cent interest on withdrawals, with no interest-free period.
• Saga’s Platinum Credit Card (over-50s only) has no foreign exchange loading in Europe but charges 1 per cent elsewhere. Its cash withdrawal fee is 2 per cent (min £2) but, unusually, it gives you 55 days’ interest-free credit on cash withdrawals, so you can easily avoid the 19.6 per cent interest.
• The Post Office Credit Card is ideal for foreign usage with 0 per cent commission worldwide. There is a cash withdrawal fee of 2.5 per cent abroad and interest of 24.10 per cent, charged from the day you take out the cash.
• The most travel-friendly plastic is Santander’s Zero Card with no cash withdrawal fee and no commission worldwide. You are charged interest on cash withdrawals of 27.9 per cent from the day you take out the money.

Safer spending

There is another very important reason to use your credit card rather than your debit card abroad. Your purchase is protected under Section 75 of the Consumer Credit Act.

This means that your credit card provider is equally liable for purchases over £100 if the good are faulty or they don’t arrive – so they will reimburse you. This fantastic protection could be invaluable if you buy something on holiday that you want to get shipped home, for example. Remember you don’t have the same protection if you use your debit card.

So next time you flash the plastic abroad, consider whether you’ll be better off by using should be your credit card not your debit card.