The best way to pay on an international vacation

International vacations are exciting, but they're also a big drain on your finances. How can you get the biggest bang for your buck while you travel in another country?

Canadians traveling abroad have a few options, including credit, debit and prepaid cards, or simple cash. Here's how to choose the best method to keep your money safe and avoid complications when vacationing

Credit cards offer security, but often charge extra fees
Credit cards are often the gold standard for international payment, because of the security they offer. You have zero liability protection in case of fraud, and if you do lose the card, you can simply call and cancel it - you won't risk losing money. Additionally, credit card purchases are protected by extended warranties and purchase security.

Plus, if you get a card specifically for your trip, you'll ensure that you have plenty of funds for any purchases that come up. Some credit cards also offer travel perks and rewards, such as discounts on rental cars and hotel rooms, airline miles or travel insurance.

Watch the added costs, though. Some credit card companies charge foreign transaction fees, a percentage on top of charges in international currencies. This fee - usually 2.5 per cent - can add up quickly if you're swiping your card several times per day. If you will be gone for a lengthy period, or if you travel a lot, try looking for a card that specifically states that it does not have foreign transaction fees.

Debit cards, the co-badged and regular variety
Only co-badged Visa or MasterCard debit cards are accepted internationally. Co-badged debit cards have some advantages: they won't leave you with any interest-bearing debt, and they can help you keep a closer eye on your spending, since the funds come directly out of your bank account.

Things to watch out for with co-badged cards: some charge foreign transaction fees. For example, TD charges a 2.5 per cent foreign transaction fee.  

Also, while having the funds come directly out of your account can make it easier to watch your spending, you must watch your spending, or you could be left stranded.

Your regular debit card can be useful, though. You can use it to pull local currency out of ATMs, rather than carrying Canadian dollars and having to visit a currency exchange in your destination country.

Check with your bank to see what the fees are for international withdrawals. Some banks charge little or no fees on their cards, making them great for travel purposes.

"The best is for people to check with their bank. Get informed," says Mary Lou Silva, owner of Strathroy International Travel.

For example, the foreign institution whose ATM you are using may still charge you a number of fees, including ATM fees or foreign transaction fees. Be sure you're getting out enough cash so you don't have to use too many machines.

Go basic with cash
In many countries, cash is a great way to pay for small expenses, such as tips, meals and taxi rides.

Seasoned traveller and writer Rick Steves says he uses mostly cash on his trips to Europe.

"For me, it all comes down to maximizing ease and minimizing fees," Steves wrote on his blog. "I pay for as much as possible with cash, using a bank that charges no or low fees for international ATM transactions."

Handy as cash is, though, it comes with some obvious risks.

"I don't advise you to take too much cash, because when you lose it, you lose it," Silva says.

With cash, there is no protection in case of loss or theft, and there is no protection on any purchases you make with it. You run less risk of busting your travel budget with cash, but you also don't leave a lot of room for unexpected expenses.

Plus, some parts of your trip will necessitate plastic. You may need a credit card to book a hotel room or rental car, or for emergencies.

Find a middle ground with reloadable prepaid cards
Reloadable prepaid cards offer both protection against loss or theft of your funds, as with credit and debit, while keeping you within the confines of a strict budget, as with cash. Plus, you can use them for more than one trip - just add money as needed.

You won't run the risk of using your actual credit or debit card in countries where chip and PIN technology hasn't taken off yet, giving you an added element of security. If you lose the card, you can simply call and cancel it.

However, prepaid cards are not without fees. You may face a one-time purchase fee, an annual fee or both. You should not have to pay any transaction fees (though if you load a prepaid card in Canadian dollars, you will have to account for the currency conversion of whichever country you are in).

Not all banks offer reloadable prepaid cards, but many do. Ask your bank to see if they carry them.

Before you head out on your international adventure - and whether you choose one payment method or a combination of cash, credit, debit and prepaid cards - take into account what you'll be doing on your trip.

Will you be eating out a lot, or doing more cooking at your hotel or possibly at a campsite? Will you be renting a car? And consider how long you'll be gone, and what kinds of health and travel insurance you want handy.

A little planning will go a long way in keeping your trip as smooth as possible.

See related: What to look for in a credit card travel health insurance plan, How to choose the best travel rewards card for you, Do you need to call your credit card issuer before you travel?
Published October 14, 2016

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