How to avoid fees when spending abroad: the charges to look for

Nobody notices a fee at the till. It shows up a week later as a slightly odd line on a statement, or as an exchange rate that is a little worse than the one you saw online. Individually the amounts are small. Over a two-week trip, with a card in your hand for every coffee, they add up to a dinner or two.

The good news is that nearly all the leaks come from a short list of causes. Learn to spot them and you can avoid most of them without much effort.

The four places money leaks

1. The exchange rate itself

Every time money changes currency, someone sets a rate. The "real" mid-market rate is the one you see on a currency converter. What you actually get is usually a bit worse, and the gap is the provider's margin. It may be shown as a visible fee, or hidden inside a rate that looks better than it is.

A fee-free account with a poor rate can cost more than an account with a small fee and a fair rate. So the question is not "is there a fee?" but "what did I get for my money?"

2. Foreign transaction fees

Some cards add a charge, usually a percentage of the amount, whenever you spend in another currency. That includes buying from an overseas website while you are at home. Others charge nothing. You will find it in the card's terms or the "fees" page of your bank's website or app.

Many travellers carry a card chosen specifically because it does not add this charge, and keep it for spending abroad. If you do not have one, it is worth checking your options before a trip rather than after.

3. Cash machine charges

Withdrawing cash can cost you in up to three ways:

• Your bank's fee for using a cash machine abroad, or a flat or percentage fee for cash withdrawals.
• The machine operator's fee, which the machine should show before you confirm. It can differ from machine to machine in the same street.
• The exchange rate, as above, and for credit cards, interest that starts the day you take cash out.

You can reduce all three. Use machines attached to bank branches. Take out larger sums less often. And read the screen before you press the button, because the operator's charge is meant to be displayed before you accept.

4. Dynamic currency conversion

This is the one worth knowing by name. When you pay by card abroad, the terminal may ask: pay in the local currency or in your home currency? It sounds like a favour, because you see the amount in familiar money. In practice the shop's card provider sets the conversion, and the rate is almost always worse than your own bank would give.

The rule is simple: when asked, always choose the local currency. It happens at hotels, restaurants, shops and cash machines, and it is more common in tourist areas and at airports. If a waiter has already pressed the home-currency option, you can ask for the payment to be cancelled and redone.

How to spot a fee before it happens

Four checks take under a minute:

1. Read the screen. Look at the currency, the amount and any "fee" or "charge" line before you tap or enter your PIN.
2. Compare with a converter. Look up the rate on a converter, convert the price in your head, and see whether the amount on the screen is close. A large gap is the clue.
3. Check your statement on the first day. One or two early transactions will show you what your card really does. If a charge looks wrong, that is the time to ask your bank.
4. Keep receipts for big spends. For hotels and car hire especially, the final bill and the pre-authorised hold can differ, and a receipt makes any dispute short.

Choose how you pay for what

You do not have to use one method for everything. A sensible split looks like this:

• A card with no foreign transaction fee for everyday spending, always paid in the local currency.
• A debit card for cash machines, used rarely and for larger amounts.
• Cash for the places that want cash, covered in how to pay abroad.
• A second card from a different provider as a spare, and not as the one you use daily.

Credit cards add their own wrinkle. They can be a good way to pay for flights, hotels and car hire, because they often offer extra protection if something goes wrong, but cash withdrawals on them are usually the most expensive way to get money, and interest starts at once. Check the terms.

Travel money cards and prepaid cards

Cards designed for travel, often loaded with currencies in advance, can offer good rates and spending controls, and they keep your main account separate. They can also come with their own fees: for loading, for cash withdrawals above a limit, for inactivity or for converting leftover money back. Read the fees page, and check that unspent money can be taken out again without a penalty.

Fees on your own side

Some costs are not from the foreign end at all:

• Online purchases in another currency. A booking site might charge in a currency you have not held. The same dynamic currency choice appears: pay in the currency of the seller if it is offered.
• Paying friends back. If you split costs in a different currency from your own, the rate used on the day matters. See how to split travel costs with friends for ways to keep it fair.
• Leftover cash. Notes you cannot use at home are usually exchanged at a poor rate. Spend them at the airport, give them to a friend who is going to the same place, or keep them for the next trip.

Not financial advice

This is common sense about how money moves, not personal financial advice. Terms differ between banks and change over time, so read your own card's fees page and ask your provider if anything is unclear.

Before you go

Spend ten minutes on three things: find your card's foreign transaction fee and cash withdrawal terms, decide which card is for what, and remember one rule. Local currency, every time. When you are planning what the whole trip will cost, travel on a budget shows where the larger savings usually are.