In theory, credit cards, debit cards and charge cards offer a cost-effective means of payment when travelling because Visa, MasterCard, American Express, Diners Club and JCB obtain the interbank spot exchange rate.
Unfortunately, this cost-effectiveness does not exist in practice for cards issued in many countries. This is particularly so for cards issued in the United Kingdom, where many card issuers charge 2.75% commission for transactions not in GBP, and a further 1.5% on top of that if the transaction is a cash withdrawal. Card issuers elsewhere add commissions of 1% to 1.5% for German issued cards, 1.5% to 2% for French issued cards or as little as 0.5% for Swiss issued cards. The commissions vary between each card issuer, so you need to check the small-print to be sure. The only card issuers we know of in the United Kingdom who do not charge a commission for non-GBP transactions are Nationwide, Liverpool Victoria, Frizzell and JCB.
Take the example of withdrawing 100 US Dollars from a cash machine in New York using a NatWest MasterCard issued in the UK:
- Withdraw USD 100.00 in cash.
- Amount is converted by MasterCard to GBP at the GBP/USD spot rate (1.4194 on 15-May-2001).
- MasterCard therefore charges NatWest GBP 70.45.
- NatWest adds 2.75% commission of GBP 1.94, increasing the amount charged to GBP 72.39.
- NatWest adds 1.5% cash withdrawal commission (minimum GBP 1.50), increasing the total amount charged to GBP 73.89.
- Total amount charged on the statement by NatWest includes a total of GBP 3.44 commission, adding 4.9% to the original amount withdrawn.
If you have a credit card, debit card or charge card that charges this type of commission, you may be better off taking cash in your home currency and changing the cash at an independent bureau de change in your destination country. A good bureau de change should give you a net rate around 1% from the interbank spot rate for major currencies, instead of around 5% in the above scenario. Many travel insurance policies cover you to carry relatively large amounts of cash.
