Debit Card Disadvantages Abroad: Know Before You Go

While debit cards have their advantages at ATMs, we will also discuss their lack of fraud protection and ability to build credit history. And although debit cards and credit cards alike have their pros and cons when it comes to usage abroad, the one disadvantage to avoid in both cases is the international transaction fee. These fees, ranging from around 2.75% to over 3% per transaction, quickly pile up into a substantial drain on your finances.

We'll delve into everything you need to know about debit card use abroad in this guide, and we'll recommend the best travel debit cards without international transaction fees, such as Revolut, Wise, Chime, and Starling Bank.

Do Debit Cards Work Internationally?

Yes, debit cards can indeed be used to spend internationally, provided that the card issuer is accepted by merchants abroad. Merchants and ATMs abroad will very often show the logos of the cards that they accept on their storefronts or machines.

Major card issuers, such as Visa and MasterCard, have widespread acceptance worldwide. American Express and Discover also work internationally and are considered a part of the four major credit card networks. However, they are not accepted by quite as many ATMs and merchants as Visa and MasterCard.

Less commonly-known issuers like JCB on UnionPay, which also offer debit and credit cards to their customers, have an even narrower reach globally.

You can learn more about this topic in our in-depth guide here.

Is It Better To Use a Debit or Credit Card Abroad?

Two Paddles, Unsplash

The decision to use a debit or credit card abroad will depend on your needs. Credit cards excel in two key ways: they provide robust fraud protection and contribute to building your credit history. On the other hand, debit cards are better for straightforward budgeting and for ATM cash withdrawals.

One thing is certain in either case: avoid using either debit cards or credit cards that impose international transaction fees. These fees, which usually come to 3% per transaction, pile up and significantly impact your expenses. After a $5,000 holiday abroad, you'd lose $150 on foreign transaction fees alone.

This is why options like Revolut, Wise, Chime, and Starling Bank are worth considering.

Debit Card Exchange Rates

Both debit and credit cards apply identical exchange rates. For example, if you have a MasterCard debit card or MasterCard credit card, your purchase abroad will be subject to the same conversion rate set by MasterCard. MasterCard and Visa's exchange rates are generally quite small — hovering at around 0.2% to 0.3% weaker than the real mid-market exchange rate.

Chime

Chime offers a Visa debit card. When you spend abroad with the Chime card, Visa will covert your US dollars to the local currency at their rate. Chime never charges international transaction fees, but it does charge a $2.50 out-of-network ATM fee for withdrawals abroad.

• Visit here for the Visa exchange rate calculator;
• Read our in-depth Chime review or visit their website.

Starling Bank

Starling Bank offers a MasterCard debit card for residents and citizens of the United Kingdom. Like Chime, when you spend abroad with the Starling Bank card, your pound Sterling balances will be converted to the local currency with the MasterCard rate. Starling Bank never charges international transaction fees and never charges withdrawal fees at ATM abroad!

• Visit here for the MasterCard exchange rate calculator;
• Read our in-depth Starling Bank review or visit their website.

Prepaid Multi-Currency Travel Card Advantages

However, if you desire the actual mid-market exchange rate and want to avoid the markup altogether, we recommend opting for a multi-currency card like Revolut and Wise. These accounts allow you to hold various foreign currencies in a single account, which you can directly access through the associated debit card.

The way it works is this:

1. Use your bank to top-up the account with your home currency;
2. If you go to Europe, convert your home currency into Euros at mid-market rate;
3. Pay industry-low service fee (0.1% ~ 0.4% for common currencies).

Then, at your travel destination, you can use your balance of local currency to pay at local vendors or take out cash at local ATMs. This method has several advantages over both credit and debit cards:

• Avoid exchange rate markups from Visa, MasterCard, and others;
• Avoid the uncertainty of exchange rate fluctuations;
• Get the transparent mid-market exchange rate ahead of time;
• Never get asked by machines to do dynamic currency conversions.

Revolut

With Revolut, you can convert $1,000 per month without any fixed fees. The app applies an industry low exchange rate margin of around 0.2%-0.4% to convert your home currency to the local currency. However, they sometimes apply the mid-market rate for common currencies like the Euro (€).

Withdraw cash from ATMs abroad without fees (up to a $1,200 limit per month depending on the type of account you have). After that $1,200 limit, each withdrawal will incur a 2% fee. 

• Read our in-depth Revolut review or visit their website.

Wise Multi-Currency Account

With the Wise Multi-Currency Account, you will always get the true mid-market exchange rate when converting between foreign currencies. You can hold up to 50 different kinds of currency. The app will charge a fixed fee of around 0.35% to 2% of the total transaction, depending on the currency.

Withdraw $250 from ATMs abroad per month without fees. After that limit, each withdrawal will incur a 1.5% fee.

• Read our in-depth Wise Multi-Currency Account review or visit their website.

Advantages of Using a Debit Card Abroad

One significant advantage of using a debit card while traveling internationally is its utility for ATM withdrawals. Unlike credit cards, which levy high interest rates for cash advances, debit cards access your actual bank balance, avoiding interest charges on cash withdrawals. Furthermore, credit cards charge interest daily on cash advances.

Credit cards can be great for racking up reward points while spending abroad. However, you should always use a debit card for getting cash at ATMs.

Better For ATM Withdrawals Abroad

For instance, the Starling Bank card in the UK offers fee-free out-of-network ATM withdrawals even when abroad. Options such as Revolut and Wise also offer free monthly ATM withdrawal allowances, although they charge fees after you exceed the allowance.

Low Risk of Debt

Debit cards also make financial management easy. While credit cards extend lines of debt to you, debit cards will not pose a risk of accumulating debt and incurring interest fees. With fintech apps like Revolut and Current, you can easily track your spending habits too.

You'll still need to take care to prevent overdrafts, which can lead to fixed fees, interest payments, and even account closures. To mitigate these risks, opt for accounts like Chime or Dave that impose no late fees for overdrafts or establish automated overdraft facility cancellations.

Disadvantages of Using a Debit Card Abroad

While debit cards offer easy access to cash and no risk of debt, they do come with certain disadvantages.

Takes Money Out of Your Bank Immediately

Debit cards, not credit cards, will take money out of your bank immediately. Debit card spending is directly linked to your current checking account balance. This is why debit cards may not the best option for large purchases that may overdraft your account or that you'd rather pay off in increments over time.

Lower Fraud Protection

Unlike credit cards, which extend a line of credit, debit cards operate on a cash-based principle. Consequently, fraudulent transactions can be more challenging to dispute. Should your card details be compromised, reversing unauthorised transactions may not be guaranteed and reaching customer support may be more of a challenge.

Inability to Build Credit History

Another notable drawback is the inability to establish or bolster a credit history through your debit card. Credit cards enable you to demonstrate your responsible spending habits and ability to repay debts, ultimately contributing to a positive credit history. Banks and other institutions that give loans, such as those for major purchases like cars, education, or homes, almost always consider your credit score when determining interest rates. A solid credit history can yield more favourable interest rates due to the trust it instills in lenders.

Read our guide to learn about the best cards to build a positive credit history.