How to choose a travel credit card

Kiwis love travelling and international online shopping, and many of us use at least one credit card. Choosing the right credit card for travel or online shopping could save you money. 

You’ve planned your trip, the towns and cities you will stay in, the sights and seas you hope to find… Now all that’s left is to make sure you’ll have the money to get around and get safely back home again.

Bringing a travel credit card along for the ride is one sure-fire way to make sure you’re ready for almost any situation. In this article, we explain what to look for when choosing a credit card and a debit card suited for international travel.

Compare Travel Credit Cards

Should I use a credit card or debit card to travel?

It’s often worth bringing both a travel credit card and a travel debit card on your journey.

Thanks to high interest rates, a credit card can quickly become an expensive way to pay for a holiday if you don’t pay it off within the interest-free period. But credit cards are easier to use when it comes to pre-authorisations for booking a hotel or hire car.

Debit cards can help you stick to your budget and prevent overspending – but the cards currently available in New Zealand are not designed for travel. The debit cards on the market at present can charge a lot of fees on overseas transactions and would not be a sensible choice for travel. Here at CANSTAR we’re keeping a close eye on this space and we’ll let you know as soon as some debit cards purpose-built for travel appear on the NZ market.

We’ve talked previously about whether a travel credit card, travel money card, or even cash would be the best option for different travel needs. You can read more about that here.

Look for the right card for your profile

Here at CANSTAR, we divide travellers looking for a travel money option into three distinct options or profiles to find out which cards are best suited to different types of travellers. Keep in mind that this is general advice only and does not take into account your own personal situation or finances.

Travel cards

1. Credit cards: Occasional Overseas Traveller

What travel money does an Occasional Overseas Traveller need?

Occasional Overseas Travellers are looking for a credit card to take with them on an overseas trip. It may be a once-off trip or they may travel only once per year. They are expected to spend about $5,000 on a card during the trip.

There are many benefits to using credit cards (rewards programs, complimentary travel insurances, etc.) which make this an attractive option for countries where paying in cash is not as necessary, such as the USA, New Zealand, or the UK. This could allow travellers to pay off their holiday expenses upon their return and take advantage of interest-free days, rather than using all of their savings at the time they make their purchases.

Such a traveller may be suited to a travel credit card with a low annual fee and low cost to use the card.

2. Credit cards: Regular Overseas Traveller

What travel money does a Regular Overseas Traveller need?

Regular Overseas Travellers are looking for a credit card for travelling overseas on a regular basis, at least a few times per year. They are expected to spend about $10,000 on a card during the year’s worth of trips. We consider rewards points earned on spending for this profile.

A frequent flyer in this profile may even be able to take advantage of many benefits using a rewards credit cards such as flight upgrades, lounge access, complimentary travel insurances, and the like.

Such a traveller may be suited to a travel credit card with low cost for international transactions, possibly with a rewards program attached.

3. Debit cards: Overseas Traveller

What travel money does an Overseas Traveller need?

Overseas Travellers are looking for a debit card to access their own money when travelling overseas. They are expected to spend about $5,000 on a card during the trip.

For example, if you are travelling to a country that is largely a cash based economy (e.g. South East Asian countries), you would want to be able to readily access cash. Having the ability to withdraw cash from local ATMs for low or no cost would be highly important so that you are not lumped with cash advance fees and you don’t need to travel with a lot of cash on your person.

Such a traveller may be suited to a travel debit card, or possibly even a travel money card.

What if I fit into multiple profiles?

Most people do. This is because credit cards and debit cards serve very different needs. If you want to withdraw cash from an overseas ATM, for example, a debit card may charge fewer fees than a credit card. Meanwhile, if you need to book or pay for a stay in a hotel or hiring a car overseas, credit cards are more useful for that purpose.

 

Look for a low cost credit or debit card

Essentially this means looking for a card with no annual fee and low currency conversion fees.

To find the overall cost of taking a card on an overseas trip, CANSTAR assesses multiple different costs:

How much does it cost to keep the card account open?

Look for a card with no annual fees and/or account-keeping fees. Here is the spread of annual fees we saw this year in the travel credit and debit cards market:

Annual Fees (Whole Market)
Min $0.00
Average $118.34
Max $1,250.00
Source: www.canstar.co.nz. Data collected 17 August 2016.

 

There are 4 cards in our ratings this year that do not charge annual fees or account-keeping fees, so you can actually avoid paying these fees altogether if you look around.

Number of cards in each Annual Fee price bracket
across the credit and debit card market
$0 4
$1-$50 10
$51-$150 26
$151-$300 0
$301+ 4
Source: www.canstar.co.nz. Data collected 17 August 2016.

 

On the other hand, if rewards are important to you and you can afford to pay the interest rate on a travel rewards credit card, it might be worth paying an annual fee. Our ratings show that it’s only worth paying an annual fee if you can earn more benefit back in rewards than you paid for the fee.

Here are the annual fees you can expect depending on how often you travel and the overall value proposition of a card. Cards that have received a 5-star rating not only have a low overall cost to use the card but also offer a solid rewards program:

Occasional Traveller – Annual Fees
  Minimum Average Maximum
5 Star $0 $20 $80
4 Star $0 $41 $80
3 Star $30 $73 $150
2 Star $125 $185 $390
1 Star $390 $678 $1,250
Source: www.canstar.co.nz. Data collected 17 August 2016.

 

Regular Traveller – Annual Fees
  Minimum Average Maximum
5 Star $65 $114 $150
4 Star $0 $97 $150
3 Star $0 $67 $390
2 Star $58 $118 $390
1 Star $59 $568 $1,250
Source: www.canstar.co.nz. Data collected 17 August 2016.

 

How much does it cost to use the card overseas?

Fees for using the card overseas can include currency conversion fees, ATM fees, cash advance fees, and the exchange rates on offer.

Currency conversion fees

Currency conversion fees are a fee charged any time you make a transaction in a foreign currency using a credit or debit card programmed for New Zealand dollars. Our ratings this year found there is a good range of currency conversion fees, so you don’t automatically have to settle for a card with high fees.

Currency Conversion Fees
Whole Market
Min 1.85%
Average 2.27%
Max 2.50%
5-Star Rated Cards for Occasional Traveller
Min 1.85%
Average 1.99%
Max 2.10%
5-Star Rated Cards for Regular Traveller
Min 1.85%
Average 2.16%
Max 2.50%
Source: www.canstar.co.nz. Data collected 17 August 2016.

ATM fees and cash advance fees

ATM fees are a fee charged to use an overseas ATM with a credit card or debit card.

Cash advance fees are a fee charged to withdraw cash from an ATM using a credit card, i.e. making a “cash advance”. Some credit card products do not allow cash advances at all, so insure your card allows you to make overseas cash withdrawals before departing or carry multiple payment methods.

International ATM Cash Advance – Fixed Fee
(Credit Card)
Min $1.50
Average $5.88
Max $8.00
Additional currency conversion fees and cash advance interest rates may apply.

Source: www.canstar.co.nz. Data collected 17 August 2016.

New Zealand, only Westpac has free ATM withdrawals overseas as part of the Global ATM alliance. However, they still charge a 2.50% currency conversion fee on withdrawals from ATMs within their network.

It’s not just the cash advance fee you need to watch out for, of course – if you’re making a cash advance (withdrawing cash from a credit card), you will be paying interest on that amount from the day you withdraw it. This is why we recommend using a travel debit card or a travel money card when withdrawing cash from overseas ATMs.

Exchange rates

Exchange rates are the amount of one currency you can trade (“exchange”) for another. There’s not much we can do about whether the Kiwi dollar is low or high when you want to travel, but it’s not too hard to compare exchange rates. Look for the card with the best rates on offer for your destination of choice.

Other fees and charges

Other fees and charges can include an international card replacement fee if you drop a card in the ocean and need a replacement immediately, and an over-the-limit fee if you go over your card’s credit limit.

Compare Travel Credit Cards

 

Choosing Travel Cards

How much are the rewards worth?

For cards with a rewards program, we also assess how many reward points you can earn for spending on the card. This is only a benefit if you can earn more rewards back than the overall fees you pay for the card: Rewards vs. Price.

Some credit card products provide enough bonus points for making purchases overseas to partially or fully offset their currency conversion fees, while others may offset their annual fee.

Other  credit card features to look for

Complimentary travel insurance included when you use your credit card for your overseas travel can be a delightful free bonus – as long as it covers as much as a standalone travel insurance policy would. Make sure that you know how to activate that insurance; some cards require you to buy your flights or tours using the card, while others only require that you register your travel dates online.

Airport lounge access is a nice bonus perk offered on some cards, providing access to the airline’s lounge while you’re waiting for your flight.

If your trip is a relatively long one, you will need to investigate how many interest free days are offered by various cards before choosing the right one for your situation. You should also compare interest rates.

Compare Travel Credit Card Interest Rates

You can read our annual Travel Credit Cards star ratings report to find out more about how these cards work.

 

Find out more about Travel Credit Cards

 

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