The Power of the International Card: Travel vs Credit?

Mar 07, 2016
Author: Ean Barnard

You are heading abroad soon! An exciting time awaits. Before you go – have you considered which international card will suit you the best?

The travel card and the credit card. What are they?

A Credit card is pretty obvious. It is a type of overdraft facility with a limit and an interest rate connected to it. The helpful part is that because it uses either VISA or Mastercard it will work in all the countries where those two institutions already operate.

A travel card is a type of currency card. It is preloaded with a currency of your choice and can be used in all the countries where the card is supported. The institution supplying your travel card can supply you with a list of the countries where your card is supported.

What is the foundation to establish the main differences between these two cards?

Your credit card will work through Rands if you hold it with a South African bank. A credit card then has something called a currency conversion fee. This means that each time you pay in a currency other than Rands a fee will be added to the total of the payment to pay for the currency conversion service. Remember that each time you transact with your credit card there may be a different exchange rate applicable.

A Travel Card is loaded with different types of currencies according to your choice. It depends on whether the card has the options available, but usually, you can expect to load Pounds Sterling, US Dollars, Euro’s and Australian Dollars. Travel cards can have something like a loading fee – basically an admin fee they use to finance the service of converting your Rands to whichever currency you prefer. You won't fall prey to fluctuating currencies in this instance, but will of course lose out when your own currency strengthens.

Let’s look at a case study using an international card:

You are in USA and you want to pay $500 with a card. The exchange rate is R15 for 1$.

Option A

You pay using your FNB Gold Credit Card. This means The total amount of Rands you have to spend is R7500 (R15 x 500). Add to this the 2.75% currency conversion fee – plus R206,25. This leads to a total of R7706,25.

Option B

You pay using your Travelex Cash Passport (which only takes one currency – Dollars in this instance). Make that also R7500. Add the currency conversion fee of 5.5% you had to pay upfront (once off) the moment you loaded your Rands on the card (just before they turned into Dollars) – plus R412,50. This leads to a total of R7912,50.

Now it may seem like Option B is more expensive, but let's draw up a pros and cons list to bring into perspective why a travel card could be the cheaper option.

Credit Card

Pros:

  • It is cheaper than a travel card if the exchange rate for both is the same.
  • You are still eligible for your rewards program on your credit card.

Cons:

  • It becomes very hard to budget whilst you are on your trip. You have to keep one eye on the exchange rate and the other eye on your trip’s budget all the while keeping in mind the transaction costs. This could sound more like work than vacation.
  • Your trip’s budget will decrease along with the exchange rate when the Rand weakens in relation to the other currency (this instance the Dollar). It might even cut your trip short if the Rand takes a plunge like it did in 2015.

Travel Card

Pros:

  • It is much easier to budget. The only fees you need to keep in mind are the fees up front deducted for the converting of currency and the loading of the card.
  • When the Rand weakens it changes nothing to your trip. You already have your desired currency in an amount that will last for the duration of your trip according to what you budgeted beforehand.

Cons:

  • It is more expensive than a credit card initially. Think of it is as setup cost like fixed interest rates. Also, if you want to spend money in a currency different than what you preloaded on the card – you will pay the conversion fee twice. From Rand to Dollar to another currency, whereas with a credit card you would have only paid it once (from Rands to the other currency).
  • It is not a very versatile banking solution. It is simple and is available for use in fewer places compared to a credit card.

In the end, your needs will determine the better option. If you have a strict budget to keep to, rather use a travel card preloaded with your currencies of choice. This will hedge you against a weakening Rand. You can always whip out your credit card should the Rand strengthen whilst you are abroad.

Use a credit card if a travel card isn’t accepted in the country you’re visiting. Also, make use of a credit card if you want to do multiple currency conversions with one transaction.

Please note this article is written with card transactions in mind only. Cash transactions become very tricky since all the above mentioned applies but added to that the ATM fee of the service provider abroad has to be included. It’s a unique situation that varies each time you withdraw money abroad – so please make sure about which option will suit your need in that regard. Ask your bank or travel card supplier how to go about withdrawing cash abroad. Be transparent and let them help you to choose the cheaper option of the two.

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