A luxury cruise features on the bucket lists of most travelers. Even the most hardened adventurers or boldest of budget backpackers will concede that at some point they would truly love to take a luxury cruise around the Caribbean or up the Norwegian Fjords.
As you probably know, luxury cruises do not come cheap at all. A 2-week Fjord cruise with “suite” standard of accommodation can cost around $10k while over in the azure waters of Caribbean, the clear blue sky's the limit when it comes to how much the bonafide luxury liners can charge. Of course, while there are expensive they are a truly special travel experience.
While you may be willing and able to pay this for a luxury, unforgettable holiday experience, you probably still want to try and do it as cost effectively as possible - unless you are decadently rich that is.
That is why we have written this guide to the best way to pay for a luxury cruise booking.
Whenever we pay for something in a foreign currency, or sending money abroad to a bank account outside of our home country, it is treated as foreign transaction and foreign transactions always come with fees and markups involved.
We will explore the types of fees and markups that each payment method attracts further in this post but for now will begin with a simple illustrative breakdown.
A transaction fee is a charge that a payment provider or bank levies for processing a transaction. Sometimes these transaction fees are fixed amounts and other times they are charged as percentages of the total value of the transaction. Often, bank transfers come with a fixed fee whereas debit card payments apply a percentage.
Whenever we instruct our bank or credit card to make a payment in a foreign currency, they handle the foreign currency exchange and have full control over the exchange rate that is used in the transaction.
Rather than use the prevailing market rate (as per XE for example) they instead use a marked-up rate which can be anywhere between 2 % - 4% worse than the market rate. The reason they do this is purely to make themselves some extra profit from the transaction at the expense of their customer.
Many travelers choose to use their credit cards to pay for travel whether that's booking flights, hotels or paying for dinner at their chosen travel destination. Credit cards often offer travel rewards plus better payment protections than debit cards and bank transfers and so making large value purchases by credit card can be a very good option.
Furthermore when it comes to using a credit card internationally, the fees and mark-ups can be better than the ones offered by other methods. Some credit card providers offer zero-fee foreign payments (usually this is only for paid or business account customers). Elsewhere in the market, the typical transaction fee ranges from 2.75% - 2.99% but this includes the foreign exchange mark-up so you only pay one set of fees.
Let's bring this to life with an example:
Luxury Cruise Cost = $10,000 2.75% fee = $275 TOTAL COST - $10,275
However, if you do decide to pay for a luxury cruise by credit card, it is very important to remember to clear the balance in full by the due date in order to avoid interest which is usually anywhere between 15% - 20%. 15% on top of a balance of $10,299 means that that luxury cruise is now costing $11,842.85! As such, if you are a habitual late or forgetful payer, it is probably best to avoid this option.
Normally, when you use a credit card internationally you will be asked whether or not you wish to pay in local currency. In all cases, it is best to do this as it means that your bank/credit card company is setting the exchange rate. If you choose not to pay in local currency, then the point of sale gets to set the exchange rate instead and in some circumstances they apply foreign exchange mark ups that can run to 10%.
Another option available is to pay for travels via bank transfer. In the age of debit cards and payment apps, making payments by way of bank transfer is not very common in day to day life, although it does remain more common when sending money abroad or making overseas, foreign currency payments.
As we discussed previously, banks tend to levy a fixed transaction fee which ranges from $2.75 - $50 in the US. The recipient's bank will also charge a transaction fee which the sender is usually required to pay as well.
Banks also tend to apply a foreign exchange mark-up of around 2% - 4% although this can sometimes vary depending on the exact foreign currency you make the payment in.
Let's look at another illustration.
Luxury Cruise Cost = $10,000 Bank Transaction Fee = $15 Foreign Bank Transaction Fee = $15 Mark Up of 3% (calculated on) $10,030 = $300.90 TOTAL COST = £10,300.90
As you can see, this option is a bit more expensive than using a credit card but comes without the risk of forgetting to pay and incurring interest. That said, it really depends on the exact fees and mark-up that the bank applies.
As you now know, paying for foreign travel always comes with built in costs. While these costs can sometimes feel confusing, hopefully this guide has made it at least a little bit more clear for you.
At the end of the day, there is no single correct, best payment method for a luxury cruise and it will always depend on your personal circumstances and the kind of accounts you have. In all cases though it is worth taking the time to go through the pros and cons and run the numbers before making any large, foreign currency purchase.
