Cheapest payment modes for travel in 2023

You can’t put a price on travel and yet it clearly comes at a cost.

Forgive the opening barrage of unmitigated cliches, but travel enriches the mind and elevates the soul. Depending on the kind of traveller you are and the kind of destinations you frequent, travel can offer escape and respite, refreshing us before we return to our day to day realities. Or alternatively it can serve up exhilarating adventure, the memories of which are as permanent as the scars we earn creating them.

You can’t put a price on travel and yet it clearly comes at a cost. Many of us save all year to enjoy our travels and so it is vital that we stretch every last peso, rupee or dinah as far as we can. This is why we have compiled this short (but helpful) guide examining the different ways we can pay for travel and what each one costs. Hopefully by the end you will have worked out what is the cheapest way for you to pay for your travels.

Using bebit cards internationally
Regardless of what kind of trip you are taking, you are going to need to spend money at some point. Even if you stay in a paid-up-front ‘all inclusive’ resort you are still gonna need money for souvenirs, taxi’s and for visiting authentic, local restaurants once you get bored of the hotel’s drab buffet cart. And to spend money, most travellers default to using their debit card either to withdraw cash at an ATM or to use it as a payment method.

However, whenever we use our debit cards internationally, our banks treat it as a foreign transaction and a number of things happen.

Firstly, to our knowledge the vast majority of banks in the US, the UK and Europe charge fees for overseas card use. We are not aware of any exceptions. These fees are usually a percentage of the transaction and in both the US and the UK the range is between 2.5% – 3% with 2.99% recurring quite commonly. However, there is also often a “minimum” fee and using HSBC UK as an example, that minimum is £1.75. If you are only hoping to pay for something that adds up to around £10 of foreign currency, then that’s a 17.5% sting!

As well as the transaction fee, some banks also apply an additional foreign exchange “markup”. What this means is that when they change your money into the foreign currency you are using, they use a foreign currency exchange rate which is favourable to them, at your expense. Typically banks use a markup rate of 2 – 4% which means that the foreign currency you need “costs you 2 – 4% more than it otherwise would.

Finally, in the case of ATM withdrawals, the local bank usually also charges a fixed fee and this fee also typically ranges from $2 – $5.

Cheapest way to pay hotel bill
Moving on now, when you check into a hotel or guesthouse they usually ask for payment up front and always in their local currency. Hotel bills can often run into several hundreds of dollars (thousands if you go high end) and so the question arises as to what the best way to pay for it is.

As we have discussed above, paying for it using a debit card will attract the 2.99% fee and risks attracting the additional foreign exchange markup too. As such, paying a large hotel bill using a debit card can cost 6% more than it should.

Of course paying in case is a sound option but in order to withdraw the cash you need to withdraw it and this risks attracting the same 6% extra plus the local banks fee.

Pay for hotel with bank transfer
One less commonly exercised option is to pay for a hotel with bank transfer. This one does take a little more effort as you would need to get the hotels international banking details and then manually make the payment yourself either by calling your bank, or doing it online. You would also need to get the hotel’s approval to do this and set up the translation a few days before the bill was due.

However, this method would also attract a raft of fees and costs too. Firstly banks levy an international payment fee every time they send money abroad using their SWIFT payment system. In the US these fees range from $2.75 to $50 and in the UK it’s £.275 – £17. After this, your bank will still apply its 2% – 4% foreign currency markup. Finally, the recipient hotel’s bank will also charge a fee for accepting an international payment which you as the customer will be responsible to pay.

Using a credit card internationally
In some ways credit cards are a good option for paying for travels. Most credit card providers try to encourage customers to use their card abroad by offering zero-fee transactions on card payments. However even though they may offer zero-fees, they are still applying a foreign exchange markup although even this is sometimes better than the ones the banks use and is often only bettered by exchanging cash.

The reason credit card companies do this is because they are basically betting that you forget to pay the balance when you get home so they can then charge you interest and possibly even a late payment fee.

Is it better to pay in local currency with a credit card
When you pay for something (or withdraw cash) with a credit card you will usually be asked whether you wish to pay in the local currency. The answer is that it is always better to pay using “credit card exchange rate” rather than let the point of sale determine the exchange rate. While credit card FX exchange rate markup can be as high as 4% in some extreme cases, the Point of Sale exchange rate markup can be as high as 10%.

in the local currency as this means that your bank (or credit card issuer) has handled the exchange rate and that this is the rate that will be used. Even though it is “marked up” the alternative is to allow the “point of sale” to set the exchange rate and they will take full advantage of the situation and apply an even greater markup.

Final thoughts
As we have covered, foreign transactions cost money and as such, paying for travels is always going to cost that little extra. However, we have not set out the different options available and you can see the pros and cons and hidden costs of each. Hopefully you now have a strategy in place to help you identify the cheapest way to pay for your next round of travels.

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