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Credit Cards

Credit-CardsCredit cards are widely accepted in Australia, especially Visa and Mastercard. However, some - especially smaller - businesses ask a surcharge if you want to pay by credit card. American Express is not as widely accepted and the odds of being charged a surchage are even higher.

All ATM's I have encountered so far in Australia work with credit cards, which is good and bad at the same time. Good, because the MAESTRO system used by most bank cards in Europe is not supported in Australia and a credit card might therefore be your only way to withdraw cash from an ATM. Bad, because withdrawing cash from your credit card could result in substantial fees (see below).

Let's talk a bit about fees in general and see what we can do to minimise, if not completely avoid them.

The first fee I have already mentioned above. Some businesses will ask a surcharge if you pay by credit card to cover the additional costs they have (the business is charged by the credit card company for the transaction). In Germany and many other European countries, adding surcharges depending on the payment method is illegal, so you might not be used to this. In Australia it is absolutely legal and while most businesses are very moderate and only try to recover their costs or simply absorb the costs in their overall calculation, especially cabs (taxis) are asking up to 10% knowing only too well that most people arriving at the airport have no other option but to pay by card.

The second fee is charged directly to you and appears on your credit card statement when you use your card abroad. If you are living inside the Euro zone, abroad is defined as "outside the Euro currency zone", so you might not have encountered this fee even if you have used your credit card in other European countries. This fee varies significantly and is usually between 1% and 3%. Some cards even have a 0% fee, but these are hard to find and might come with other disadvantages.

The third fee is a hidden one most people have never heard about. Whenever you trade currencies - and by paying with your credit card in another currency you do that - you should be aware of the exchange rate. Banks and credit card companies are currency traders and make a large part of their profit by applying a so called spread. Let's for the sake of making things easy assume that 1.00 Euro = 1.20 Australian Dollars. That is, what you hear in the news or read in the papers as official exchange rate. But if you want to buy Australian Dollars (and sell Euros), the dealer will offer you only 1.19 Australian Dollars for your 1.00 Euro. And if you want to trade in the other direction, you will be asked to pay 1.21 Australian Dollars for every Euro you want to buy. The bad thing about this is, that while you can shop around for the best exchange rate when you convert cash, your credit card company probably only tells you that you get the official exchange rate but not how much spread they apply. I have never seen a credit card company actually coming forward and being upfront about this little extra margin. To be fair though, I have to admit that usually this spread is much smaller than what currency exchange offices apply, but nevertheless you should be aware that there is a hidden fee involved.

The fourth fee depends on your credit card and only applies if you withdraw cash. Most credit cards work the way that you get a monthly invoice for your transactions and if you pay it in full, there are no interests charged. This is true for most things you pay with your credit card but not if you use the card to withdraw cash. In this case most companies charge a so called "cash advance rate" and unfortunately this one is charged immediately from the day you withdrew cash and more often than not this rate is really excessive at around 20% per annum. In other words: If you withdraw 1,000 Australian Dollars and are not aware of this, you will find that - when your credit card statement arrives 1 month later, you have already been charged around 16 Dollars interest on your cash withdrawal. To avoid this fee, you usually need a credit card which is directly linked to your bank account so that a cash withdrawal does not run against your credit line but is debbited directly to your bank account. Just make sure you check with your bank or card company what your conditions are, so you don't run into high and unnecessary fees.

In spite of all this, credit cards are in my experience the best and most convenient way to ensure you have access to your money abroad. I never travel without at least two credit cards - to have a backup in case there is a problem with one of the cards.


Insider Information

To minimise unecessary credit card fees and interest charges, here is what I suggest:

  1. Get a credit card which is linked to your bank account and has no cash advance fees. This is usually the case with so called debit cards (debit, because a transaction is immediately debited to your account and you do not have a line of credit), even though these cards might have the Visa or Mastercard logo and work like credit cards in every other aspect. If you do not have a sufficient line of credit, a prepaid card might be your best option.
  2. Shop around to find a card that has the lowest fee for use abroad you can find even though the annual card fee might be slightly higher. You can easily do the maths. Just imagine how much you are likely to spend during your trip and what this sums up to in fees for abroad use. Then put it into relation with your annual card fee. If this is a second card - no problem. It is anyhow better to have more than one card - just in case.
  3. If you are planning to rent a car or campervan for more than just a day or two, make sure you get a card that has insurance cover included. For more details on this see the "Insider Information" box the rental car and campervan pages.
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