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Do you just love traveling? Are you planning an overseas holiday… looking forward to it, and saving as much as you can? Or do you buy things from overseas online?

How does paying to 5 or 10% more for everything than you need to sound? Not great? Make sure that you don’t get caught in the foreign exchange charges trap.
 

“The easy way” will cost you

The effortless approach to overseas spending money is to just head to the airport with your credit card. When you arrive at your destination, you simply pay for things on your card and withdraw cash from local ATMs as and when needed.

So just how much extra will you pay to do things the easy way? Let’s look at how the fees and charges can mount up.

OVERSEAS CREDIT CARD FEES AND CHARGES TYPICAL AMOUNTS
foreign currency conversion fees – a fee charged for converting foreign purchase amounts to Australian dollars 2 – 3%
exchange rate spread – the gap between ‘the exchange rate’ you see quoted in the news and the rate you pay to buy foreign currencies (even banks pay different rates when they buy or sell foreign currencies but the gap is smaller for them because the amounts are larger) Around 5%
overseas transaction charges – some cards charge a fee for all overseas transactions, regardless of currency 1 – 3%
overseas ATM fees – in addition to the normal fee for using another bank’s ATM in Australia (and some banks charge $1.5 just to check your balance). $1.5 – $5
International cash advance fee – in addition to paying the usual cash advance interest rate (and not getting any interest free period) overseas cash advances usually incur an extra fee, a flat dollar amount or a percentage: whichever is greater $1 – $5/1% – 4%

 

So what can you do to avoid these fees and costs?

You can’t avoid them entirely. You are, after all, being provided with a service. You can minimize them, though…

  • Look into credit cards offering zero foreign currency conversion fees. Make sure you compare the other overseas costs listed above though, together with the interest rate and annual fee.
  • Take Cash. You will still pay an exchange rate spread, of course, often higher than would be charged by your credit card, so make sure you compare exchange rates. An advantage though, is that you can keep an eye on exchange rates as your holiday approaches and time your purchase when the Australian dollar is strong… and you’ll know precisely what everything will cost in Australian dollars. The obvious problem with cash is of course that if it is stolen… it’s just gone.
  • Investigate Travel Money Cards. These let you load money in (from your savings) and convert to multiple foreign currencies before you travel, so they’re like cash but you can cancel the card if it’s stolen (and have it re-issued) so you don’t lose your money. They can involve ATM fees though, depending on what machines you use and can involve a ‘re-load’ fee of 1% or more if you load more money to a card.

Of course if you buy foreign cash or foreign currency on a travel card, then you don’t spend it all and want to convert it back to Australian dollars, you’ll go through the foreign exchange spread again.

… so the best bet for overseas spending may be a mix of the three (cash, travel card and the right credit card).
 

Free Travel Insurance?

It’s not worth paying another set of annual fees for, but before you buy travel insurance, check with your credit card provider. Some cards provide free travel insurance if you pay for some or all of your travel costs by card.

 

What are your thoughts?

Do you have any ideas for avoiding these costs? Have you been burnt by currency fees and charges?

Join the conversation — leave a comment below and let us know your thoughts.