In theory, credit cards, debit cards and charge cards offer a cost-effective means of payment when travelling because the international card networks (Visa, MasterCard, American Express, Diners Club, Discover and JCB) trade large aggregate amounts in the FX markets and obtain rates very close to the interbank spot rate.

Another advantage is that card holders are often given the opposite side of the price, i.e. the bid instead of the offer or the offer instead of the bid. This is because the card networks only trade net amounts in the FX markets, i.e. the net flow of aggregate bought and sold amounts in a particular currency pair. On the same card network and same day, if for example more money is spent by US-based card holders in the UK than is spent by UK-based card holders in the US, then the card network will buy a net amount of GBP/USD. This means that UK-based card holders, who are selling GBP/USD, are given the offer instead of the bid, i.e. a much better GBP/USD rate than the interbank rate.

Unfortunately, this cost-effectiveness does not exist in practice for cards issued in many countries. This is particularly the case for cards issued in the United Kingdom, where many card issuers charge up to 3% commission for transactions not in GBP, and a further percentage on top of this if the transaction is a cash withdrawal. The commissions vary between each card issuer, so you need to check the small print to be sure. Card issuers in the United Kingdom that do not charge a commission for non-GBP transactions include Halifax Clarity Card, Santander Zero and the Post Office. A full list is maintained here and also here for those who can't get or won't get a credit card.

Take the example of withdrawing 100 US Dollars from a cash machine in New York using a Lloyds TSB MasterCard credit card issued in the UK:

Cards issued by the same bank often have very different terms. For example, although the above scenario of a Lloyds TSB MasterCard is unfavourable, the Halifax Clarity Card, also part of Lloyds Banking Group, is one of the most favourable cards for non-GBP expenditure.

If you only have a credit card, debit card or charge card that charges this type of commission, you may be better off taking cash in your home currency and changing the cash at an independent bureau de change in your destination country. A good bureau de change should give you a net rate around 1% from the interbank spot rate for major currencies, instead of over 7% in the above scenario. Many travel insurance policies cover you to carry relatively large amounts of cash.