Getting the Best Exchange Rate When You Travel Abroad

Travel writer and consumer advocate Ed Perkins offers travelers some advice on how to lower their costs while exchanging currency. He recommends using a credit card and an ATM card to avoid the high exchange rates that are usually attached to travelers checks and the fees charged by currency exchanges.
Getting the Best Exchange Rate When You Travel Abroad
By Ed Perkins
Finding the best ways to exchange currency has always been one of the most nettlesome questions for foreign travelers. However, these days the widespread use of plastic money—credit cards and debit ATM cards—makes the question much simpler.
The best strategy for exchanging currency today may be summed up in two basic rules: Put as much of your foreign expenses on a credit card as you can, and use your ATM card whenever you need to get cash. With a little bit of background and research, you can spend more of your money on travel and less on fees.
Getting the Best Exchange Rate When You Travel Abroad
As a visitor to a foreign country you will always lose at least a little in the process of exchanging currency. Your objective is to keep that loss as low as possible. Here are some facts about currency exchange that may surprise you:
* On a retail transaction—exchanging United States currency or travelers checks for foreign currency at a bank or exchange office—you usually lose from 4 to 8 percent on the transaction. You will lose even more if you exchange currency at a hotel.
* You won’t lose less money by exchanging currency in the United States before you leave. In fact, U.S. bank rates are usually worse than bank rates overseas. Buying travelers checks in a foreign currency before you leave home doesn’t help matters: You will simply take the loss here when you buy them instead of taking it overseas when you cash the checks.
* When you use a credit card or a debit ATM card in a foreign country the least you can lose is the (approximately) 1 percent fee that the international MasterCard and Visa networks charge to make the actual exchange. With American Express and Diners Club the fee is about 2 percent.
* When you charge a foreign purchase to a bank credit card, such as MasterCard or Visa, all you lose with some cards is the 1 percent the issuer charges for the actual exchange. Other banks, however, add a surcharge of 2 to 3 percent on transactions in foreign currencies. The decision whether or not to surcharge is up to the bank that issues the card, not MasterCard or Visa. Some of the big banks that don’t surcharge are Capitol One, HFC, and US Bank. Among those that do surcharge are Chase, Citibank, First USA, and Providian. Even with a surcharge, however, you generally lose less with a credit card than with currency or travelers checks. American Express and Diners Club don’t surcharge beyond the 2 percent fee.
* When you use a debit card, such as Cirrus or Plus, to withdraw foreign cash, the conversion fee is 1 percent, the same as with a credit card. In addition, you pay a fee, established by your bank, for each withdrawal. The typical fee for an overseas withdrawal is 2 to 3 dollars, although a few banks charge more; you pay the same fee, no matter how much or how little you withdraw. A few small banks offer “no-fee” ATM cards to attract business.
* When you use a credit card to get foreign cash, the withdrawal is treated as a cash advance, and you are immediately subject to interest charges in addition to the 1 percent conversion loss and a fee of 3 dollars or more.
A basic strategy for exchanging currency
Take maximum advantage of your credit card and debit ATM card by following this basic strategy:
* Use a credit card to lose the least on your foreign purchases. By researching the different cards before you leave on a trip, you can keep your losses to around 1 to 2 percent.
* For the cash you need, keep your losses to a minimum by withdrawing foreign currency with an ATM debit card. If you withdraw in amounts of $200 or more, the percentage loss is small. If you use a credit card to withdraw cash, you’ll lose a lot more. Don’t use a debit card for small withdrawals.
* Don’t use travelers checks as your primary means of foreign payment. But do take along a few $20 checks or bills to exchange at retail for those last minute or unexpected needs.
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