credit card currency
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Credit card currency

A simple topic that we get asked time and again - credit card currency! So what are the pros and cons of using your plastic to get out your foreign cash and how much do you value safety when faced with additional charges from the banks for using your card abroad.

Using credit cards for currency

More times than not, credit card currency is the name of the game and the preferred option for millions of Brits abroad. Accessed using our trusty plastic, credit is the basis of our global financial system - despite the recent crunch headlines.

Apart from providing a convenient option to pay for goods and services abroad, credit card currency is simply one way you can access foreign currency when on holiday. Using an ATM, your credit card offers security and peace of mind, particularly when travelling abroad. Cash is still King, but it lacks the ultimate security as it can be lost or stolen quite easily. Traveler's cheques can be cumbersome as they are of a pre-nominated amount and will need to be cashed at a venue that accepts them.

Who operates the credit cards?

The providers of credit card facilities such as Mastercard and Visa, are owned by certain banks, and receive a fee from issuers of credit cards in return for providing the extensive international infrastructure that is required to maintain the credit card system. Usually this fee is dependent on the number of transaction undertaken and so it is not surprising to see many advertisements extolling the virtues of credit cards in their favour.

As the issuing bank or financial institution, an interest charge that is the always at a large premium to other rates of interest will be charged the customer for the privilege of using a credit card. Usually a customer can expect to pay approximately 15% over the domestic cash rate for interest on a credit card, which in the UK is about 18%. Of course there are numerous various credit cards, with varying conditions of use and applicable rates of interest, but generally, if the full balance is paid within 30-50 days, there is no interest charged upon the account. If there is a residual outstanding balance after this interest free period, the onerous interest rate will apply.

The issuer also receives payment from retailers who wish to accept credit cards for goods and services, and who pay a fee per transaction for the infrastructure and facility. Therefore it is often the case that a retailer will require a minimum amount to be spent before it will accept a credit card purchase.

Why use plastic?

When travelling overseas, credit cards will allow purchases in foreign currency, but will automatically calculate an exchange rate that has between 2-3cents (or units) premium in favor of the issuing bank. In addition there may be a further min percentage fee (starts from £1.50) to execute a foreign cash withdrawal.

Given this rather large expense, credit cards may not be the most lucrative manner in which to exchange foreign currency for pounds sterling, however, the convenience and security they offer while abroad are often a most acceptable trade-off. In addition to this, a credit card itemizes all purchases in a monthly statement, and these transactions are accessible online also. In this way, a traveler will always know what they spent and where.

Is this a good option

In our opinion - great for security, lousy for value. However, if you get certain credit cards, they will allow you to make unlimited transactions aborad for no charge at all - that's what you want if you need an emergency bac up. Otherwise our money is in hard cash! Great exchange rates and no suprises once you have paid for the money upfront.

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-- Additional useful articles --
»  Travelers cheques an option?
»  Using debit cards abroad for currency
»  Comparing currency exchange options
»  Background on travelers cheques
»  Foreign exchange explained

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