Credit vs debit cards: which should you use for holiday spending?

Should you use your credit card or your debit card when you go abroad on holiday? This is the perennial dilemma facing travellers, and the answer is rarely straightforward.

It generally boils down to what you are using your card for – cash withdrawals versus paying a restaurant bill, for example – and the terms and conditions of your cards.

Charges you could face

Whatever type of card you use, there are certain charges and fees you are likely to face while abroad.

These are:

• Foreign usage fee. When your overseas spending is translated into sterling, your bank will normally add a fee of a few percent.

• Cash withdrawal fees. These are imposed whenever you use an ATM, and are typically a percentage of the money withdrawn.

• Flat fees. Some cards will also impose a flat fee of £1.50 or £2, for example, every time you use the card.

• Interest on credit-card spending. Usually when you pay with a credit card, interest charges don’t begin until the date of the next statement. However, you may be charged interest as soon as you spend abroad – and this will usually be the case for cash machine withdrawals.

Transaction fees: do your sums

Before you travel, you should check carefully what fees your debit and credit cards impose. For example, some of the debit cards provided by the UK’s biggest banks also come with the largest overseas usage charges.

If your card charges a flat £2 fee per transaction, say, then you will know not to use it for small-value purchases if possible. Equally, it may work out more economical to withdraw larger sums from cash machines, although this could present security risks if you have to carry around large amounts of local currency.

If your credit card is one that charges interest on foreign spending from the off, you can reduce your bills by paying off your card as soon as you use it: but this will require you to have internet banking access while you are overseas.

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Paying with your smartphone

If you use a smartphone to make contactless payments in the UK through a service like Apple Pay or Google Pay, you should be able to do so in other countries – provided retailers have the right contactless technology.

These payment services are usually linked to a single card – one of your debit or credit cards. The charges you face when using your phone to make payments overseas will depend on which card is linked, and what the terms of that card are – so there will be no difference in charges between using your phone and paying with the actual card itself.

Getting a card just for holidays

If you can plan ahead, one solution could be to take out a credit card which is designed for use abroad and which has low, or in some cases zero, charges. Many leading card firms offer such cards, so just do your research before you apply.

But bear in mind that, as with all credit cards, if you don’t pay off your debt in full when the next statement is due, you will face interest charges from that point on.

You could also consider getting a special pre-paid travel money card from a provider such as FairFX or Revolut: these work just like debit cards when you are abroad, but you load money onto them before you head off (you can also top up the cards online while you’re away).

The advantages of these cards are that their usage fees are typically low, while you can also lock in your exchange rate when you load the card. They can also be a good way of controlling your spending while you are away.

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