Money Considerations when Traveling

When traveling, you are away from your financial institution and need to plan how you are going to carry and get funds. Before you leave for your next trip abroad, take a moment to think about your cash requirements and how you are going to get cash. Do a little homework first.

It is important to know your options. It used to be that traveler’s checks were the most popular way to carry money overseas. Today, travelers are much more likely to rely on credit cards and ATM withdrawals, which usually offer better exchange rates and lower fees.

You need to determine the best option for you? Let’s examine the pros and cons of the different options.

 Credit Cards

Best use is for: Large purchases such as airline tickets, hotel bills, and restaurant meals.

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, these fees are typically lower than those you’d pay to cash traveler’s checks or convert your own currency at a change bureau. There are a few cards that do not charge any foreign transaction fees at all.

On the down side, some restaurants, stores and even hotels won’t take credit cards. While you can use credit cards to get cash advances at ATM’s, bear in mind that they’ll be treated as cash advances and be subject to any finance charges your credit card company imposes.

A problem for some travelers is the growing prevalence of “chip-and-PIN” credit cards. 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 strips will still work in swipe terminals, there are reported problems using those cards in ticket vending kiosks, at gas stations or in other places featuring automated payment machines. In such a case, your alternative is to find an attendant to scan your card or use cash.

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 dollars. We recommend calling before each trip, as these policies may change without notice.

You will also want to let your credit card issuer know when and where you will be traveling. If you don’t, the sudden international activity on your account might trigger your issuer’s fraud alert system. It would be a good idea to bring 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 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.

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 issuer and ask them to dispute the charges.

 Debit and ATM Cards

Best use is for: Getting cash in local currency.

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 ATM’s 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.

Keep in mind that each cash withdrawal you make will usually be subject to currency conversion fees, foreign ATM fees or other charges from your bank. Debit cards work pretty much the same as a regular credit card 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 up to $500 of unauthorized charges.

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 them 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 use is for: Tide you over until you can find the nearest ATM. It is always necessary to have cash during the first 24 hours of your trip —

It’s often a good idea to get some foreign currency as soon as possible in your trip. If you change in the US airport before flying to your destination, you will get the worst possible exchange rate. As long as you realize this and are ok with it, go ahead. However, in almost every arrival airport there are exchange booths where you can change your dollars for only a small percentage over the official rate. It is always a good idea to start your trip with a good supply of one dollar bills. They are accepted almost everywhere.

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 ATM’s and change counters, getting currency beforehand probably isn’t necessary.

 Traveler’s Checks and Check Cards

Best use is for: Emergency backup if you can’t find a functioning ATM or a secure alternative to cash.

Traveler’s checks and check cards provide more security than cash because they can be replaced 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.

The exchange rate for traveler’s checks is not as favorable as the interbank rate you would get when using a credit or debit card, and very few merchants accept the checks for purchases these days. The travel check 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.

You can avoid some of those pesky fees by cashing your traveler’s checks at the bank that issued them. You can cash your American Express checks for free at the many American Express offices overseas.

 International Wire Transfers

Best use is for: Solving problems of an immediate nature, such as emergencies when you need money in a hurry.

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.

The fees for sending money abroad can be steep. The faster you need the money, the more expensive it will be.

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 usually take more time.