Spending Money Overseas : Cards vs Cash

Are you thinking about how to best spend money overseas? Between swiping cards and withdrawing cash, which is the better option?

This is my second article to help you prepare your SEP money options. In this article, I will be covering the difference between the costs associated with using credit cards and withdrawing cash overseas. Hopefully after reading this article, you will know what to look out when making your choice. And with luck it’ll help you save some money too (:.

Credit Card

First let’s start by exploring the fees we pay when using credit cards. In simple terms, Credit card charges can be broken down into “Administrative Fees”, “Currency Conversion Charges” and “Exchange Rate Losses”. That is:

credit card

Administrative Fees are charges levied by the bank for your overseas transactions. The exact % you pay here depends on the type of bank and card that you’re using.

Currency Conversion Charge is done by Visa/MasterCard or other payment networks like Amex. Additionally the amount charged depends on whether you pay using Dynamic Currency Conversion (DCC) or Non-Dynamic Currency Conversion (Non-DCC). What’s that you ask?

Imagine that you’re travelling to Australia for a shopping spree. When you’re paying, the merchant asks you “Would you like to pay in SGD (DCC/home currency) or AUD (Non-DCC/local currency)?”. This actually illustrates the two types of currency conversion. Under DCC, you pay a foreign transaction in your own home currency (eg SGD). The merchant or DCC service provider charges their own exchange rate and conversion fees (unknown but usually between 3 – 3.5%). This is before adding an administrative fee by Visa/MasterCard of about 0.8-1%. Meanwhile under Non-DCC, you are paying a foreign transaction in the local currency (eg AUD). The rates and fees are decided by payment network providers like Visa/MasterCard and depends on the bank/card you use.

Generally, you should always opt to pay via Non-DCC (local currency). If using DCC (home currency), you will be at the mercy of the merchant’s exchange rate. Unfortunately, this is usually a marked up rate. The only real benefit DCC provides is to let you immediately see the price in your home currency.

Finally, you have Exchange Rate Losses which are the inevitable losses of doing foreign transactions. As mentioned, the rates under DCC are set by merchants while Non-DCC uses the prevailing rates by Visa/MasterCard etc. However it is also worth noting that under Non-DCC, most banks will charge you this loss TWICE if you pay using a non-USD foreign currency eg SEK. They will first convert to USD, then to SGD.


Now let’s look at the fees incurred for overseas cash withdrawals. Have you ever heard of the saying that “Cash is King”? If you already have some cash on hand, then the only loss will be in exchange rate when you spend it abroad. Cash is the easiest form of money for transaction and if you have cash on hand, it wins against using credit and debit cards hands down from the lack of administrative and conversion fees.

However if you are withdrawing cash while abroad, it will undergo the same 3 losses through currency conversion charge, administrative fees and loss in exchange rate.

So, should I swipe cards or use cash?

If you already have cash on hand, then cash wins hands down.

However if you are withdrawing cash, then there is no obvious answer. As each bank charges different amounts for cash withdrawals and cards, the choice strongly depends on the bank ATM and credit cards that you’re using.

Most banks follow the fee structure that I highlighted above, but they each charge varying amounts. For example, if your host country has CIMB or Citibank ATMs for cash withdrawals, you should definitely use those cards to withdraw as they have zero processing fees. If you’re choosing between DBS/POSB and OCBC for cash withdrawals, using DBS/POSB would be better than OCBC for bulk cash withdrawals. If instead you’re comparing DBS/POSB cash withdrawals against swiping their credit cards, a cash withdrawal for lump sums (eg S$700 or more) may actually end up saving you some money in the long run. And if you are looking for a tax-free savings account, The Children’s ISA is for you.

As such, you need to research and compare how much each bank charges for both their overseas cash withdrawals and credit card expenditures. This is a difficult task no doubt. I have already done some preliminary research on Singapore banks (as of June 2016) and summarised them here. You may use that as a reference to start.

Aside from charges, you may also wish to check if there are rebates for overseas credit card transactions. Even opening an overseas bank account to deal in euros could be an option too, provided that you can fulfill the requirements to open a bank account (eg minimum stay period of 6 months). Finally there may be other concerns, such as the potential risk that comes from carrying large sums of cash as you travel.

I urge you to strongly consider the different bank options available to you and possible concerns, before deciding whether withdrawing cash or swiping cards is preferable. Personally, I prefer using credit cards while holding onto some emergency cash but that’s just my opinion (:.

Final Helpful Tips

Credit card tips

  1. Remember to activate your cards for overseas expenditure (and withdrawals) if you intend to spend money abroad via card. You can also set the deactivation date in advance. Also, you can try using your credit union bank; they have great deals for their members. You can ask them how to claim those rewards.
  2. Put a spending and withdrawal limit on your credit / debit / ATM cards depending on how much you expect to spend. This helps to control your expenditure as well as reduce amount of possible loss if you lose your card. Note that some banks allow a limit on a specific subsidiary credit card while others are only be able to set a combined limit on all the cards.
  3. Additionally, set an SMS alert for all your cards’ expenditures (and to the minimum sum). If an expense of at least the set sum (eg S$1) is made on that card, you will be alerted to this via SMS. In some European countries like Sweden, you are required to hand over your IC when you use your cards. This is to verify your credentials as you are not using a local card. A friend of mine suspects that this was how somebody copied his card details and made a fraudulent expenditure using his card. Thankfully, he was alerted and quickly annulled his card.
  4. Bring your banking token overseas. Some actions such as switching your bank contact number to an overseas one require you to have it. Be careful not to lose it!
  5. Consider having 2 bank accounts. Deposit most of your funds in one account and a minimal amount in the second. By linking your cards to this second account, it serves as an emergency measure. If you lose your cards, your losses will up to your cards’ limits and the amount inside that second bank account.
  6. Always have your bank’s emergency overseas contact number on hand (and perhaps your card details).

Yup I guess that’s about it. I hope that this article has helped guide you in deciding between cash or cards when spending your money overseas in your exchange program!  (:.

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