Stretching your U.S. Dollar

I can still remember very clearly when I headed to Mexico for a visit after 6th grade.  Before leaving, we went to the bank to pick up some American Express Travelers Cheques.  Once in Mexico, if we wanted to use one, we had to either find a bank, a casa de cambio, or a vendor that would accept them–all of whom offered an atrocious exchange rate.

How times have changed.

It may seem like getting a 1.35 Euro-Dollar exchange rate versus 1.40 isn’t such a big deal.  But think about it–if you spend the equivalent of $3000 while abroad, you’re missing out on 150 Euros that’s going down the exchange-fee drain.  And while American Express Travelers Cheques claim to be more secure–they advertise “peace of mind wherever you go”–there are less expensive ways that may be even more secure that involve much less hassle.

So, if Travelers Cheques aren’t the answer, what is?

World Currency

Stretch your U.S. Dollar by avoiding foreign transaction pitfalls


 

Credit Cards

Generally the most cost-effective solution is to use your credit card, but ONLY if there is no credit card foreign transaction fee.  I should probably use bigger text here.

BEWARE OF CREDIT CARD FOREIGN TRANSACTION FEES.

Most credit cards charge a 1-3% foreign transaction fee on all transactions that don’t occur in US Dollars.  OUCH.  Reminds me of the crummy exchange rates when converting Travelers Cheques.  Fortunately there are exceptions.  Capital One seems especially committed to no foreign transaction fees.  Other great options include Chase Sapphire Preferred, BarclayCard Arrival Plus, Chase Hyatt, Chase United MileagePlus Explorer, and Chase Ink.  If you’re unsure about whether a card of yours incurs these fees, it’s easy to find out–simply call the number on the back of your card and ask customer service.  Or if you’re the more organized type, and you save those cardholder agreements that you receive in the mail, you should be able to find it in there.  The credit card companies spell out this fee clearly at the time you apply for the card (by law, if I’m not mistaken).  If a card doesn’t have the fee, you’ll also usually find it advertised in the marketing materials.  But you can always find it in the Pricing and Terms documentation in a section marked “Transaction Fees” under “Foreign Transactions.”  (Note: this is the same section where it spells out annual fees and whether the fee is waived the first year.)

Pricing & Terms

Example of where in the documentation you’d find the foreign transaction fee detail for a credit card

Why is using a credit card a great idea when traveling?  For earning points and miles, of course!  Might as well be saving up for your next trip, right?!  Unfortunately, if you’re using a card with foreign transaction fees, you’re likely consuming the value of those earned points/miles just as fast as you’re earning them.

In addition to that, though, you’re getting competitive exchange rates (and you don’t have to second-guess them).  Plus, you have the usual “zero liability” coverage that comes from the credit card issuers.  So if your card gets lost or stolen, or there’s a mysterious charge that appears on your statement after your trip, you’re covered.  If you lose your card, most credit card issuers can get you a new one within 24-48 hours wherever you are in the world.  Just in case you have to deal with this, I recommend bringing more than one credit card on your trip–and not carrying both in your wallet.  Either leave one in the hotel safe (my favorite option), put one in your moneybelt (separate from the other one in your front pocket), or give the other to someone else in your group for safe keeping.  It’s also a good idea to jot down (digitally, if possible) the customer service phone numbers for each of your cards.  Be sure to jot down the “international/call collect” phone numbers, since 1-800 numbers won’t work when calling from outside the U.S.

So if you’ve got (or can get) a credit card with no foreign transaction fees–and one that earns points or miles–that’s my first preference for spending abroad.

 

ATM Card

But you need a backup with you, primarily because credit cards may not be accepted everywhere.  In fact, it can be pretty tough to use a credit card at lots of places outside the U.S.  When we were in Portugal, I always tried to use a credit card, but in reality, I was able to use it only rarely–mostly at sizable tourist sites, large grocery stores, and large restaurants in the city.  In Paris, London, and some of the other big tourist spots, you’ll find much higher credit card acceptance, which is nice, but still often requiring a minimum purchase (~10€).

The best backup is cash that you’ve withdrawn from an ATM in your destination country.  And in Portugal, that was generally how we worked things.  We’d withdraw as much as the ATM would allow in a single transaction (200-400€), and then use that until it was gone before reloading at another ATM.  ATMs offer a great exchange rate, but there’s a big drawback–foreign ATM fees.  Similar to the fees that we experience in the U.S. when going to an ATM that doesn’t belong to our own bank, except WORSE, i.e. higher.  In Europe, I saw fees totaling about $13 for any withdrawal ($5 ATM fee + $8 foreign exchange fee).  I know, pretty awful.  But if you’re getting enough out at a time to spread that fee a bit thinner, it still may be better than you’d get with other methods.

The good news is, you may be able to do a bit better than $13 per transaction.  Bank of America has an arrangement with a handful of non-US banks, essentially forming an international ATM network in which no ATM fees apply.  More details here.  Unfortunately, it seems like the foreign exchange fee still applies, so the fees in my example above drop from $13 to $8.  Better, even if not awesome.

A few other banks with not-as-bad foreign ATM fees are Ally (“up to 1%”), Capital One (online-only accounts), and Citibank.

 

A couple of final cautions

Keep in mind that foreign currency transactions don’t only take place once you arrive at your destination outside the U.S.–they can also occur before your trip as you make reservations or buy tickets from the comfort of your own home.  So if you’re booking your hotel directly or flights with a non-US carrier (such as British Airways), use a no-foreign-transaction-fee card or be aware that you’ll be paying extra fees for it.

And lastly, if you’re ever making a purchase abroad and the vendor asks if you’d like to perform the transaction in US Dollars, just say no.  The exchange rate will be crummy.

Hope this helps.  It really fits with my mantra of not wasting money.  A good mantra, right?

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