Expatriates need to be aware of "hidden" bank charges when they use their credit or debit cards abroad.
When arriving in a new country, whether for a long period or just a short vacation, expats are most likely to check out the local shopping areas. Once you are ready to buy, you work out the price in your own currency, pay with your credit card and pat yourself on the back for finding a bargain. However, when your next bank statement arrives, you may find out it wasn’t such a good deal after all.
This kind of mistake happens quite often. Your bank probably uses a different exchange rate to the one you based your calculations upon, charges are also often levied by credit and debit card companies. Most companies add a fee of up to 3% for every transaction made abroad. For example, on purchases of $1000, you could end up paying an extra fee of $24.
Credit card fees vary depending on the bank. The fees may appear on your monthly statement in various forms: “foreign exchange fee”, “non local transaction charge”, “handling fee” and “point of sale fee”. However, they all have the same meaning – You’re being charged extra just for using your card away from home.
If you still prefer to use credit card rather than cash when going abroad, it’s worth searching for card issuers who do not levy extra fees. For example, in the UK, neither the Post Office nor Nationwide Select Credit issue transaction fees for using your credit card abroad. According to moneysavingexpert.com Santander Debit is one of the worst cards when used abroad as it charges £1.25 per purchase.
Credit or Debit: What’s cheaper?
Many expats wonder if using a debit card is cheaper than using a credit card. There is not much in it, but credit cards turn out to be slightly cheaper when it comes to purchases. While both credit and debit cards include a “foreign exchange rate transaction fee”, purchases made by debit card may incur a “flat customer charge”. This is a charge levied for processing fees and other costs.
Despite a credit card being cheaper than a debit card when it comes to purchases, the most cost effective way to get foreign currency abroad is through a local ATM using a debit card. You will have to pay both fees, foreign transaction fee and an ATM fee. The ATM fee is slightly higher if you use a credit card. With this given, it makes sense to use your debit card and withdraw large amounts in one go, rather than little amounts often, in order to avoid high service fees.