Want an example of the triumph of marketing hype over good sense? Look no further than the travel money card.
Often called by the generic term "cash passports" (even though the name "Cash Passport" is trademarked by Mastercard) and available from just a couple of providers a few years ago, banks, airlines and even Australia Post have galloped in to offer their own branded version of the travel money card. Any product which generates so much enthusiasm among financial institutions should inspire caution in the customer.
In essence these are stored value cards. You choose how many euros, US dollars or other major currency you need, buy those with Australian dollars at the nominated conversion rate and then either withdraw those funds in local currency at ATMs or use the card to pay for transactions overseas.
But when you get right down to the nitty-gritty, that's exactly what your credit or debit card does, yet the travel money card providers whack you with high fees for doing the same thing.
Chances are the cards you use every day are going to penalise you with a currency conversion fee which will add a couple of percentage points to any transaction you make overseas. However, some cards come with no currency conversion fees. The ones I use most frequently are the Citibank Plus Everyday Debit card, which I preload with Australian dollars and use for withdrawing local currency from ATMs, and the ANZ Rewards Travel Adventures card, which I use for paying bills. The Citibank card has no annual fee, the ANZ card does, but it also earns points and comes with a few other benefits.
The pros of travel money cards
One of the selling points that travel money card providers use to persuade punters to buy their product is that you're protected against negative currency fluctuations. You've locked in the value of your Aussie dollars against another currency, you know exactly how many euros, pounds or US dollars you have and that insulates you if the Aussie dollar happens to fall against that currency. Quite so, but if the Aussie dollar rises between the time you purchase that other currency and the time you spend it, you've paid more than you needed to. Nobody can predict currency fluctuations with any certainty, so the "lock in now" argument just doesn't stand up.
You'll pay more if you use a travel money card to pay your bills rather than a card that charges no currency conversion fees. Here's an experiment. I'm in Europe, I've got a CommBank Travel Money card loaded with euros and other currencies and my ANZ Rewards Travel Adventures card. I'm paying a restaurant bill for €80 and trying to decide which card to use, based on the exchange rates that apply on July 9 2019.
This also assumes the euros were credited to my travel money card at the rate that applied that same day. That's not likely, but it still serves for the purposes of the experiment. A restaurant bill of €80 is going to cost $135.13 if I pay with my CommBank Travel Money card, but only $129.09 if I pay using my ANZ card.
One of the facets of travel money cards is the ability to load them with several different currencies. In that case you can convert from one currency to another but CommBank charges a fee of 5.25 per cent for doing so. Say I have just €50 os credit left on my travel money card and $US100. I can still pay my €80 restaurant bill but CommBank levies a charge of 5.25 per cent for converting the US dollars on my card to euros. Therefore I need another €31.58 to cover my bill, converted from $US35.48 which costs me $53.16 when I added it to my travel money card. That €80 bill now costs me a total of $137.62, or 6.7 per cent more than if I paid it with my ANZ Travel Adventures Card.
The CommBank Travel Money card fee of 5.25 per cent for conversions from one currency to another is at the lower end of the scale. Travelex, one of the biggest travel money card providers, charges 5.95 per cent.
Withdrawing from an ATM
I'm withdrawing €200 on July 9 at an ATM in Paris. In this case I'm using my Citibank Debit card, which I've pre-loaded with Australian dollars. That transaction costs me $321.80. If I use my CommBank Travel Money card for the same transaction that's going to cost me $341.55. Not only is the exchange rate that CommBank uses to my disadvantage, I also get hit with a €2.20 fee for every cash withdrawal. However some travel money cards – Travelex for example – waive this fee. I might also pay a fee to the ATM facilitator but that's unavoidable regardless of which card I'm using.
Suppose I'm in India and I use my CommBank Travel Money card to withdraw 10,000 rupees at an ATM. The Indian rupee is not one of the 13 world currencies that can be loaded onto the card. Nor is the Croatian kuna, Malaysian ringgit, the Norwegian or Swedish kroner or the Turkish lira. That's a fairly typical list of the currencies that can't be loaded onto any brand of travel money card. In the case of this withdrawal in India, I have US dollars loaded onto my card and that's the currency that CommBank will use to allow me to make the withdrawal, but, as a non-eligible currency, the fee for withdrawing in rupees adds 5.25 per cent to the transaction. Using the CommBank Travel Money card that withdrawal will cost me $233.39. Using my Citibank Debit card that same withdrawal costs $209.61.
Cashing your card in, another way to lose
Back home, I still have some euros left on my CommBank Travel Money card. I want to convert those euros back to Australian dollars, and here's another big win to the travel money card facilitator. Again using the currency conversion rate that applies on July 9, when I buy those euros to add to my CommBank Travel Money card I get 59.2 euro cents for every Australian dollar.
Converting those euros back to Australian dollars, CommBank wants 65.3 euro cents for every dollar it gives me. Say I have €200 remaining on the card, that would have cost me $337.84 if I purchased them on July 9. Redeeming them at the rate that applies on the same day, I would get back $306.23. That's a profit of 10.3 per cent to the bank for doing nothing except minding my cash, which they've been able to use for their own purposes while it's in their hands.
Suppose I still have a credit of $300 on my Citibank Debit card. That's in Australian dollars, so I can transfer it back to my regular transaction account, all $300 and not a cent less, no fees involved.