The best travel money options for your next overseas trip

You've booked flights and accommodation for your international trip, but how are you going to pay your way abroad? Here are the travel money options available.

It's fast approaching that time of year when Australians heading abroad over winter will need to start digging out their passports and suitcases.

Unsurprisingly, European cities like Barcelona, London and Paris are likely to be among the most popular destinations this year - at least, according to search data from Airbnb for stays in June, July and August.

Australian travellers aren't only going to be eating, drinking and navigating their suitcases through the cobblestone streets of some of Europe's largest cities though. Those seeking a more tropical climate helped Bali make the list, as did skiers and snowboarders in search of snow in Queenstown.

Making sure that flights and accommodation are booked will, of course, be at the top of the priority list for most people. But so should working out how you want to pay while you're overseas.

"I think it's really important that before you go travelling, you take the time to consider how you would like to spend," says Sarah Megginson, personal finance expert at Finder.

"Are you the type of person that likes to carry cash in your wallet, or do you like putting everything on your card? It really depends on how you enjoy travelling, but it's worth thinking about."

So what are your travel money options, what are the costs involved and what else do you need to know about your paying while abroad? Let's dig in.

Credit cards for overseas travel

• Pros: Widely accepted; handy for large expenses
• Cons: Transaction fees and ATM withdrawals can be expensive

Credit cards are one of the more widely accepted payment options overseas, and because they work on credit - naturally - that can make them handy when paying for big ticket items like accommodation or tours when you might not want to use your own money - at least, not straight away.

"A credit card can be enticing, as some travel credit cards offer free international travel insurance if you purchase a certain amount of prepaid travel costs on the card, with additional bonus rewards points or frequent flyer points for spending overseas," says Rachel Wastell, money expert at financial comparison website Mozo.

"These cards can work well for travellers who stick to their budget and carefully plan ahead, however, if you're getting a credit card specifically for a holiday, be careful that you don't end up overspending, and clear the balance at the end of each month to avoid hefty post-holiday interest charges."

Beyond the interest they charge, credit cards also have fees. Transaction fees, for example, can easily add up if you're using your credit card for multiple purchases every day, plus they're often steeper than those charged on debit card transactions.

Another cost that's worth watching out for when travelling overseas is the price you'll pay to withdraw money using a credit card. On top of cash advance fees for ATM withdrawals, many cards will charge a double-digit cash advance rate which applies as soon as the money is taken out.

Using your debit card overseas

• Pros: Convenient; can be cheaper than credit cards
• Cons: Aren't accepted at all businesses 

Can you use your debit card when travelling overseas? The answer - much of the time - is yes. That's because Australian bank-issued debit cards generally either partner with Mastercard or Visa, both of which operate in over 200 countries and are accepted by millions of merchants.

That makes debit cards a relatively flexible, widely accepted travel money option and, as Megginson explains, one that can really suit budget-conscious travellers.

"The great thing about debit cards is having access to your own money, so in terms of budgeting you can predetermine how much you want to spend and make sure you've got that available. It's also easy to access your money because you can usually use them at most ATMs overseas."

Debit cards aren't entirely without cost though. Among the fees travellers may want to look out for are transaction and ATM withdrawal fees (both from your Australian bank and the ATM operator).

"While the fees may not seem high at first glance, the average currency conversion fee of 2.62% equates to $262 on a $10,000 balance," says Wastell.

"ATM fees can also really add up, averaging out at $3.16 per withdrawal. Bankwest, Macquarie and Up all have fee-free debit cards worth a look."

While debit cards are widely accepted, it's worth bearing in mind that some businesses, like hotels and hire car companies, won't always accept them for pre-authorisation (a security hold). Instead, they typically require a credit card.

Multi-currency accounts for overseas travel

• Pros: Hold and spend in multiple currencies
• Cons: Smaller range of options

A newer option that's begun to be offered by a handful of players in recent years is multi-currency accounts. These are essentially transaction accounts which allow users to hold multiple different currencies at once, and they are often pitched to individuals or businesses who frequently make transactions in foreign currencies.

Some also come with linked debit cards which can be used by Australians travelling overseas. For example, HSBC's Everyday Global account lets customers hold up to ten currencies at once and make payments abroad using a linked debit card with no international transaction or ATM withdrawal fees.

"Multi-currency accounts can be beneficial for travellers visiting multiple destinations, as they not only offer access to various currencies, but Mozo analysis shows they provide the best exchange rates on average when compared with debit cards and prepaid cards," says Wastell.

Like other options, multi-currency accounts can come with various fees attached, so Wastell recommends looking for an account with competitive exchange rates and low or no conversion fees.

Prepaid travel cards

• Pros: Budget-friendly; spend in multiple currencies
• Cons: Fees can add up

Also known as travel money cards, prepaid travel cards are offered by many of the larger banks as well as businesses like Australia Post, Travelex and Wise. As Megginson explains, they can be a particularly useful option for travellers who are looking to stick to a set budget.

"Prepaid cards are really good for people who love to be super organised because they allow you to load your budget onto the card, so it's a great way to make sure you don't overspend. Usually they also have an option to top up funds while you're away if you need to, so there's that flexibility."

Prepaid travel cards are used in the same way you would a debit card to make over-the-counter payments or withdraw cash.

Unlike most debit cards though, they allow multiple currencies to be loaded onto the card (e.g. EUR, GBP, USD, NZD, etc.), making them handy for people on longer, multi-country trips.

Most prepaid cards do have fees though, including some unique ones. For example, you may be charged a fee to load money onto the card in the first place and to make payments in a currency you haven't loaded onto it. ATM withdrawal fees are also common (on top of whatever the operator charges).

"Mozo analysis shows prepaid cards usually have exchange rates about 5% worse than multi-currency accounts and around 4% worse than debit cards, so if you are opting for these cards keep an eye on the exchange rate," Wastell warns.

Is it better to use cash or card overseas?

Beyond the various card options that can be used while travelling overseas, there's also cash. Of course, cash also has its pros and cons.

Depending on where you're travelling it may be the dominant or only payment option, so in that case you'll certainly need access to foreign currency. Even in destinations where card is more prevalent, it may still be worth having some cash as a back up in case anything goes wrong with your card.

For Megginson, cash can certainly be a useful option for travellers wanting to stick to a budget, but that also needs to be weighed up against the danger of carrying too much cash and the risk of it being stolen.

"What I really like about cash is that it can make you very thoughtful about purchases because there's an emotional cost attached to handing it over. When you're holding cash in your hands you tend to think a little more about your spending and whether that cheesy t-shirt or little trinket is worth buying."

Four tips for travel money success

Before you head to the airport, Wastell and Megginson also have a few other tips to ensure that your spending overseas goes as smoothly as possible.

• Contact your bank before you leave: "Inform your bank or financial institution of your travel plans before you start spending in another country, to avoid potential card blocks or security concerns," Wastell recommends.
• Pack your physical card: "A lot of places overseas won't accept Apple Pay or Google Pay on your phone. So you've got to make sure that you actually take your real card as well, even if you're used to paying with your phone in Australia," says Megginson.
• Monitor exchange rates: "Keep an eye on exchange rate fluctuations and consider timing your currency conversions strategically to maximise savings, or just make sure you opt for a card that is known for competitive exchange rates," Wastell says.
• Opt for the right fit: "There are so many options and the best one for you doesn't necessarily need to be the cheapest one - it can be the one that makes your experience more seamless. I know some people who only use their credit card even though it's more expensive, but they like just being able to pay it off in one lump sum when they get home," Megginson says.

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