Cash, credit or travel card? Tips for spending abroad

Overseas travel requires thoughtful planning, not just when booking flights and hotels, but also when converting your NZ dollar.

Is it best to buy your foreign currency before traveling, withdrawing it from a foreign ATM when you arrive at your destination, or to use your debit card, credit card or travel money card?

The variables between cash, debit card, credit card or travel money card come down to changing exchange rates, foreign transaction fees and security.

“In terms of cash, it’s best to buy foreign currency before you leave New Zealand,” says Nicole Knapp, Manager of Retail and Development at World Travellers.

There are some foreign exchange websites that allow foreign currency purchases online with a debit or credit card without fees. The cash is then collected at your selected New Zealand airport on the day of your departure.

“Some providers let you order cash for your date of departure and exchange any left over foreign currency back to NZD free of charge with the original purchase receipt,” Knapp said.

Travellers are advised to research whether there are restrictions on how much currency can be brought in to the country they intend to visit.

Foreign currency can also be purchased from a local bank branch.

“An alternative option is to get cash out via an ATM when you reach your destination, however this could potentially be more expensive than getting cash from a bank branch before you leave New Zealand,” Westpac's consumer product management spokesperson, Grant Penrose said.

“When using a debit or credit card to get cash out at an overseas ATM, the card scheme i.e. Mastercard or Visa, provides the exchange rate.  The cardholder’s bank will charge fees and the ATM provider may also charge a fee,” Penrose said.

Knapp also believes that converting cash before your trip saves time and stress.

“When I get to my destination the last thing I want to be doing is looking for ATMs or exchange booths and having to negotiate in a foreign language.

“I’m also a believer that sometimes people get so caught up in getting the ‘best rate’ for exchanging around $1000, that they drive themselves nuts over losing $8 or $10 on a rate conversion.  If you’re converting tens of thousands of dollars, yes it is very important that you get the best rate down to the last cent.  But if you’re talking small numbers, save yourself time and stress by exchanging the money before you travel,” Knapp said.

The travel expert said she personally splits her travel budget across cash, debit card and credit card.  She believes using a mix of all three has the value of using whichever option fits the situation, however, she chooses not to use travel money cards.

Penrose also agrees that splitting your travel budget across cash, debit and credit card could be the safest option.

That way you are not carrying too much cash in your wallet from a safety perspective but you have enough security in case some merchants do not accept cards.  If you are looking for a foreign ATM, it is also recommended to find one attached to a well-known bank’s branch for increased security.

“Debit cards can be more advantageous than credit cards in the fact that you are using your own money to avoid interest charges. A lot of people do not have a positive balance on their credit card, in which case you would be paying interest on cash withdrawal,” he said.

However, both debit cards and credit cards would use the exchange rate at the time of the transaction, which could fluctuate.

In contrast, a travel money card gives customers certainty by locking in a fixed exchange rate at the time of purchasing the foreign currency on the card.

“Customer preference between the debit card or travel money card depends on their appetite for certainty around the exchange rate.  Both cards may have fees attached to withdraw money or make transactions,” Penrose said.

A common mistake travelers make when using a multi-currency travel card is selecting the wrong button on the ATM that then charges them an extra conversion fee.

“There can be confusion at foreign ATMs on how to get the funds off the travel card,” the spokesperson explained.

“Sometimes the foreign ATM asks for a dynamic currency conversion and if the customer presses ‘yes’ the ATM could charge for a second conversion rate. For example, in the US, the ATM will recognise the card as a NZ card and will ask the customer if they want to convert their money to US dollars.  The problem is that if the customer already has US dollars loaded onto the card, they would be charged again for a second conversion. There is a problem with customers not understanding foreign ATM instructions,” he said.

Your travel destination also needs to be taken into consideration.  If you are traveling to an exotic destination that uses an unsupported currency on a travel money card then you are less likely to get a good exchange rate. Certain countries may also not exchange New Zealand dollars for local cash currency. Therefore you might need to bring US dollars or Euros as back up to exchange for local cash.

Countries such as Morocco operate with a currency that is non-convertible, which means you cannot take it outside of the country.  Therefore, if you were to have left over local currency at the end of the vacation, make sure to exchange it into Euros or British Pounds before you leave the national airport.

Regardless of where your next vacation is, make sure to notify your bank of which countries you will be traveling to with your cards in order to avoid your account being frozen.  If your bank's Financial Crime Prevention team suspect fraudulent activity, you could end up with a locked card, which is even more reason to have some cash in your pocket just in case of emergency.  

Both electronic fraud and physical threats are always a danger so depending on where you are traveling, be vigilant and aware of your surroundings when pulling out your wallet.