Before you leave for your
next trip abroad, take a moment to think dollars and cents — or should we say
pounds and pesos? Get the most for your money when traveling internationally by
doing a little homework first.
The most important step
is to know your options. In days of yore, traveler’s checks were the most
popular way to carry money overseas — but today’s travelers are much more
likely to rely on credit cards and ATM withdrawals, which usually offer better
exchange rates and lower fees.
What’s the best option
for you? And how can you avoid those pesky currency conversion fees when making
purchases abroad? Read on for answers to these questions and a comprehensive
roundup of all your currency conversion options when you’re traveling overseas.
Credit
Cards
Best
for: Large purchases such as airline tickets, hotel bills, car
rentals and restaurant meals.
Pros: The
biggest advantage to using credit cards while traveling overseas is that credit
card purchases are exchanged at the interbank exchange rate, usually the best
rate you can get for currency exchange. While most credit card issuers charge
currency conversion fees each time you make a purchase in a foreign currency
(generally 1 percent from Visa or MasterCard plus an additional 1 – 2 percent
for themselves), these fees are typically lower than those you’d pay to convert
your own currency at a change bureau. And there are a few cards out there (many
from Capital One) that do not charge any foreign transaction fees at all, not
even the ones from Visa or MasterCard. Check out CardHub.com for a list.
Cons: Some
restaurants, stores and even hotels won’t take credit cards, so you’ll need to
have cash on hand at all times. While you can use credit cards to get cash
advances at ATMs, bear in mind that they’ll be subject to any finance charges
your credit card company imposes — which can add up very quickly. Plus, if
you’re not home by the time the bills come in and you haven’t made arrangements
to pay them, you’ll be hit with hefty finance charges on these advances.
One problem for U.S.
travelers is the growing prevalence of “chip-and-PIN” credit cards in Europe,
Asia and South America. Designed to reduce fraud, these cards rely on an
embedded chip that transmits information to a merchant, which the consumer then
verifies by entering a PIN. While U.S. cards with magnetic stripes will still
work as long as there’s someone to swipe them, many travelers report problems
using their cards in ticket vending kiosks, at gas stations or in other places
featuring automated payment machines. If you find yourself in this dilemma,
your only alternatives are to find an attendant to scan your card or to use
cash instead.
These cards are not yet
widely available in the U.S. However, several banks, including Citi, Bank of
America and Chase, have begun issuing dual credit cards that use both the magnetic
stripe and the embedded chip, and Travelex has introduced a prepaid
chip-and-PIN MasterCard that works like a hybrid between a credit card and a
traveler’s check. (See the Traveler’s Checks and Check Cards section of this
story to learn more.)
What You
Need to Know: The first thing you should do if you are traveling abroad with
a credit card, even if you only plan to use it in case of an emergency, is to
call the issuer and ask which fees will apply to your purchases, both in local
currency and in U.S. dollars. We recommend calling before each trip, as these
policies may change without notice.
While you’re on the
phone, you’ll also want to let your credit card issuer know when and where you
will be traveling — that way the sudden international activity on your account
won’t trigger your issuer’s fraud alert system. As a precaution, we recommend
bringing two credit cards on your trip in case one stops working. Finally, get
a phone number that you can use to call the company from overseas if your card
is lost or stolen. (The 800 number on the back of your card typically will only
work in the U.S. or Canada.)
Some merchants
(particularly in Europe) offer what’s known as dynamic currency conversion,
which means that they’ll charge you in dollars rather than the local currency.
Because some card issuers will waive the currency conversion fee if your
overseas purchase is made in dollars, dynamic currency conversion could help
you save a few coins. However, keep in mind you’ll almost always get hit by a
conversion fee from the merchant instead — sometimes up to 5 percent — so you
may end up losing out on the deal. Be sure you know which fees apply to either
option before deciding which currency to use.
A few other caveats to
bear in mind: Some hotels and car rental companies may put holds on your credit
card for the amount of your total expected bill. This can use up your credit
line before you’ve actually incurred and paid for the charges. All merchants
are supposed to inform you if they do put a hold or “deposit” on your card. If
they do, make sure you clarify that the hold has been removed when you’ve paid
your bill in full.
Keep in mind that you may
not have as much protection overseas as you do at home when problems arise over
inaccurate charges. Incidents are always being reported of travelers being
charged twice for the same item or for items they never purchased, and credit
card companies have been unwilling or unable to intercede on their behalf.
Always watch merchants imprinting your card and keep your receipts. After you
get home, check your credit card statement. If you see charges you didn’t make,
call your creditor and ask them to dispute the charges.
Debit
and ATM Cards
Best
for: Getting cash in local currency.
Pros:
You’ll get the same great interbank exchange rate when you make cash
withdrawals with your debit or ATM card as you do when you make a credit card
purchase. With ATMs available in major cities and airports all over the world,
this is generally the cheapest and most convenient way to get cash in the local
currency.
Cons: Each
cash withdrawal you make will usually be subject to currency conversion fees,
foreign ATM fees or other charges from your bank and/or the local bank that
maintains the ATM. For more information, see ATMs Abroad. Debit cards work
pretty much the same as regular credit cards for purchases, but if your card is
lost or stolen you may not have the same protection. By U.S. law, as long as
you report your card missing within two business days, your maximum liability
for use of that card will be $50 — the same as for a credit card. However, if
you wait any longer, you could be responsible for hundreds of dollars in
unauthorized charges.
What
You Need to Know: If the ATM card from your home bank isn’t connected to the
worldwide Cirrus or PLUS networks, you may want to look into getting a
MasterCard or Visa debit card. While they look and can be used like regular
charge cards, they actually debit your checking account the same way your ATM
card does.
If you are renting a car,
you should be aware that while you can use a debit card to pay for the rental
charges, you might not be able to reserve the car with this type of card.
Finally, don’t forget to
call your bank and make it aware of your travel plans; as with credit cards,
sudden international activity using your debit card could cause your account to
be frozen.
Cash
Best
for: The first 24 hours of your trip — to tide you over until you
can find the nearest ATM.
Pros: It’s
often a good idea to get some foreign currency before you leave home so that
you have cash on hand to handle your immediate expenses — like buying a meal at
the airport or taking a cab to your hotel. This way you’re not stranded without
cash if the airport ATM isn’t working or you arrive after the local exchange bureau
has closed.
Cons: You
typically won’t get a great conversion rate from your home bank, and you may
also have to pay fees or commissions. If you’re traveling to a major
international airport in a large city, which will likely have multiple ATMs and
change counters, getting currency beforehand probably isn’t necessary.
What You Need to Know:
You can get foreign currency from your local bank, online or at the airport.
Try your local bank first, as they may waive fees for certain accountholders.
We recommend bringing $100 – $150 worth of foreign currency. See Buying Foreign
Currency: Get More Bang for Your Buck for tips.
Traveler’s
Checks and Check Cards
Best
for: Emergency backup if you can’t find a functioning ATM (checks)
or a secure alternative to cash (checks and check cards).
Pros:
Traveler’s checks and check cards provide more security than cash because they
can be replaced (usually within 24 hours) if lost or stolen. While traditional
traveler’s checks have largely gone the way of the dinosaur, Visa and Travelex
offer travel cards that are prepaid like traveler’s checks but work like credit
cards for purchases and ATM withdrawals. To avoid the aforementioned problems
that U.S. travelers have at overseas chip-and-PIN machines, Travelex even
offers a chip-and-PIN card (available in several different currencies).
Traditional checks are still sometimes useful as currency if you can’t find a
functioning ATM.
Cons: The
exchange rate for traveler’s checks is not as favorable as the interbank rate
you’ll get when using a credit or debit card, and very few merchants accept the
checks for purchases these days. You’ll also have to pay commissions, shipping
charges and/or conversion fees to purchase and cash the checks. The prepaid
cards give you better exchange rates, but there are plenty of fees here too —
look out for activation fees, charges for reloading the card, ATM charges or
inactivity fees. In most cases, you’re probably better off using your own debit
card.
What
You Need to Know: Keep your checks’ serial numbers in a secure but separate
place from the checks themselves in case they’re lost or stolen.
Sending
Money Abroad
Best
for: Emergencies when you need money sent overseas in a hurry.
Pros: If
you find yourself stranded overseas without cash, someone at home can wire
money to you and you’ll have it within a day — or even a few minutes.
Cons: Fees for sending money abroad can run anywhere from 1 to 10
percent or more; the faster you need the money, the more expensive it will be.
What
You Need to Know: The best-known companies for sending money are Western Union
and MoneyGram. Both charge variable fees depending on how much money you’re
sending and where you’re sending it. The slower the service you choose, the
more economical the price.
Other choices for sending
money abroad include bank wire transfers or international postal money orders
from the post office. While less expensive, these methods may take more time.
