Woman with debit cards at an airport terminal.

Often when traveling, people underestimate the costs involved in managing their money. In fact, many people use debit cards or accounts that charge not insignificant fees in addition to fixed fees, especially when withdrawing cash.

This is especially true outside US or Europe where many traditional accounts and cards often reach, or even exceed, 5-10€ in fees on every single withdrawal, and on foreign currency payments one can easily reach a 3% markup on the exchange rate. It is therefore clear that, especially for long-term travel, these fees can affect the budget in no small way.

In this article we will go which solutions to choose and why, so that these costs can be minimized. I strongly recommend reading the article in full, you will have a clearer idea of why I recommend certain accounts and what are all the possible fees to avoid, which in some cases go beyond having the right card.

Difference between debit cards, credit cards, prepaid cards

What is ATM ?

Let’s first get some clarity on the terminology used, starting with the word “atm” that I often use in this article: atms are nothing more than the international name used to call ATMs.

What is Interbank exchange rate ?

On the other hand, when I talk about interbank exchange rate I am referring to what is often called the “official exchange rate” or “commission-free currency exchange rate,” that is, the exchange rate that is shown by various apps or google searches. To make a long story short, the exchange rate you would like to have in any situation, be it these withdrawals, online payments or via terminal in a store/restaurant.

What is a Debit card ?

The debit card often mistakenly called an “ATM,” is basically the card associated with a checking account. When you make a purchase online, pay with the card, or withdraw at the counter, the amount involved is deducted directly from your account balance, and if there are not enough funds, the transaction fails.

We have traveled for years using debit cards exclusively and have never had any kind of problem.

What is a Prepaid card ?

Prepaid cards are in many ways, similar to debit cards. When you shop online, pay with the card, or withdraw at an atm the funds are deducted directly from what can be called a card account and thus the outcome of the transaction depends solely on the balance present at the time of the transaction.

Very popular in the past, especially for making online purchases since the old debit cards were not enabled for such transactions, as of today in my view they are obsolete, in fact they often have reload fees, some also have fees for managing and issuing the card, plus the functionality and possible banking transactions are limited compared to a checking account. Finally, I guarantee that no prepaid card offers very good conditions for withdrawing abroad, especially when it comes to non-euro currencies.

Basically, debit cards are clearly a better option than prepaid cards in that they have no disadvantages compared to prepaid cards but offer more functionality (among many things, with a checking account you can make and receive wire transfers which is not always a given with a prepaid card) and, as mentioned earlier, the economic conditions for withdrawing abroad are generally better. Long story short: there is no advantage to using a prepaid card over a debit card, the only differences are on the negative side. 

If you are one of those who “if my prepaid card is cloned/stolen at least I know that the loss is limited to the money on the card and not to all my savings in my checking account,” I assure you that you can have the same “security” with a debit card; in fact, just use the checking account linked to the debit card just as if it were a prepaid card and “top it up” via wire transfers (free for practically any decent checking account nowadays) only and exclusively when you need it. 

What I just described is basically what I do with all the accounts I use for traveling where I never have too much money. While the debit card linked to my main account, where most of my savings are, sits comfortably at home safe from possible fraud and theft.

What is a Credit card

Credit cards differ from debit cards and prepaid cards in that they are not directly associated with a checking account; in fact, the latter is used only for debits when the statement is closed.

Basically, when you use a credit card to withdraw or make payments, you do not need to have sufficient funds in your checking account since it is your bank or card issuing company that advances that amount and only at the end of the following month will you be debited for those amounts from your checking account.

In case the funds are not there when the statement is closed, then the problems begin as you will have to pay high interest rates and the card may be revoked. 

For obvious reasons, the issuance of a credit card is not exactly a given; for example, you have to prove that you have a certifiable income and a spotless credit history. 

Also, it is really difficult to get a credit card without any kind of fees or spending constraints to reset the fee, with a few rare exceptions as I will show later in the article, and in general, credit cards do not offer good economic conditions when it comes to withdrawing cash.

I think that for most people, having a credit card is an unnecessary expense unless you do not make large expenditures and thus take advantage of the various “points programs” that some companies offer.

In short, as I see it, when it comes to travel, nothing beats a good debit card coupled with a good account and that is why virtually all the options proposed in this article fall within this category.

Things to consider when choosing an online bank

There are four main aspects to consider:

Check the fixed and account management fees

I mean all the costs of maintaining the account or card such as monthly/annual fees, fees for top-up transactions, wire transfers, account opening, etc. etc.

Check the withdrawal fees

I mean the fee that applies when you withdraw cash at the counter. In principle it is free if you do it at your bank, it is a fee if you do it at other banks and can be extremely expensive especially outside the Euro zone.

For example, my account with Ing Direct offers free withdrawals throughout Europe but as soon as you go outside the European borders a €5 fee is triggered to which a currency exchange fee must be added which I discuss below.

Currency exchange fee

this fee is charged in addition to the withdrawal fees when withdrawing cash outside the Euro zone. This fee varies on average between 1.5% – 3% of the amount withdrawn or in some cases is charged on the exchange rate.

This is often a “hidden” fee that in many cases you have to go and unearth at the bottom of the page, in small print, in the terms and conditions; many accounts advertise fee-free withdrawals worldwide when in truth this is not the case.

Take for example the popular “Hype” reloadable card that promises, “with HYPE you can withdraw from any ATM in the world without fees!” Then further below: “on foreign currency withdrawals, a 3% fee is charged on the exchange rate set by MasterCard. This fee, therefore, does not apply directly on the withdrawal, but on its exchange rate.” Not exactly commission-free in short…

Exchange rate surcharge for transactions in a currency other than the euro

to use less banking terms, this is a fee for foreign currency payments, i.e., when you use your card for online or terminal payments (e.g., at a store/restaurant or online) using a currency other than the euro.

This item often differs from the currency exchange fee applied to withdrawals just seen, in that some cards charge no fee for making payments in a currency other than the euro but do charge a currency exchange fee when withdrawing cash.

An example is the N26 account (free version), the card in fact does not apply any surcharge on the exchange rate for payments in a currency other than the euro (you can safely use the card to pay online or in a store/restaurant in a foreign currency without incurring fees) but when it comes to withdrawals at the counter in a currency other than the euro, a currency exchange fee of 1.7% is applied on the amount withdrawn.