Money may be the last thing you think about when you’re planning a trip. But the moment you arrive at your destination, you’ll make up for the oversight. Money exchange booths and the ATMs offering local currency greet you at the terminal. And you’ll have to decide what to do about travel and money.
Why does money have to be so complicated when you travel?
Money has always been a little complicated for travelers. When you’re on the road, you can use credit cards, debit cards traveler’s, checks (yes, they still exist) and cash as legal tender. But what’s the best deal? Short answer: For domestic trips, you probably won’t need to change the way you buy anything. Internationally, you’re almost always better off using a credit card with no foreign exchange fees. Carry a little cash, which you can pull from an ATM (but check with your bank before you do).
Longer answer: It doesn’t need to be so complicated. Today’s payment systems — credit cards with their high merchant fees, cash with its exchange fees, and traveler’s checks — are the very definition of inefficiency. The cross-border financial system is begging to be disrupted. Companies like Revolut and TranferWise have just begun to reinvent the system, with promising results.
When you’re visiting a country where most transactions are still handled in cash
Many countries still favor cash transactions, for a variety of reasons. The only way to know is to ask. But not all countries prefer cash. Some African countries, for example, are virtually cashless, using cell phones to handle their transactions electronically. Sweden, Finland and China are nearly cashless societies. A good travel advisor can offer guidance.
If you’re making purchases that are traditionally cash-only
Some businesses remain stubbornly cash-only. Popular restaurants in small towns and vendors at farmers markets or flea markets, for example, only accept local currency. Their customers don’t mind settling their bills with paper money, and the businesses prefer not to shoulder the extra cost and infrastructure required to accept plastic.
To avoid credit card fees
Many credit cards impose fees on transactions that take place outside the U.S.. In order to steer clear of them, you’ll have to use cash. Bear in mind that withdrawing cash from an automatic teller machine (ATM) could cost you a pretty penny, too. (A 2 to 3 percent foreign transaction fee and a 3 percent cash withdrawal fee — that’s 6 percent just to access your money — yikes!)
If you want to rent a car or check into a hotel, you will need a credit card (not a debit card)
A merchant may refuse to rent to you if you don’t have a credit card. If you don’t carry plastic, you’ll need to make special arrangements in advance and pay a deposit.
If you need the protection offered by a card
Some credit cards offer additional protection, such as primary or secondary car rental insurance coverage. They may also extend your warranty on purchases. Also, if a credit card is lost or stolen, it can be replaced quickly and easily, while limiting your liability. Some credit card companies will even overnight a replacement card to your hotel. Check with your card by calling the toll-free number on the back to see if they offer this service.
One of the benefits of paying with a credit card is that if something goes wrong, you may have the option of disputing the purchase and getting a full refund. (There are limits.) Your rights to dispute a purchase are outlined in the Fair Credit Billing Act. A word of advice: If you have a dispute, call your bank or credit card issuer immediately and find out what to do. The sooner you say something, the better.
In a foreign country, you’ll have several payment options.
Your credit card. If credit cards are accepted, you can use your Visa, American Express, or MasterCard without having to extract cash from an ATM.
Pros: Credit cards offer some protection against fraudulent purchases. They can offer a more favorable interbank exchange rate, and save you from having to carry large amounts of cash.
Cons: Many credit cards add a 2 to 3 percent “foreign exchange fee” to any transaction that happens outside the U.S., even if it’s in dollars.
ATM. The automatic teller machine is a great option if you have to make a cash purchase, but would prefer to not carry around too much cash.
Pros: You can withdraw just enough to make the purchase, and the rest of your money stays in your account, and in your local currency. This strategy may or may not work for you, depending on where you are. If your bank charges per withdrawal, you may want to withdraw a larger amount.
Cons: Fees! Your bank will charge a transaction fee, which will probably be significantly higher overseas. You may not get the best exchange rate. Your receipt may not show you the exchange rate — just the amount you are taking out in local currency. So if you withdraw 200 euros from an ATM from your dollar bank account, you will need to do some mental math and check your account later to find out the exchange rate. (Banks often — but not always — offer a better exchange rate than an ATM.)
WARNING: In Europe, some ATMs charge a 13 percent “markup” from the going exchange rate, which is revealed only in the fine print. Pay very close attention to the final screen before pushing the “accept” button, or you might lose hundreds of dollars on the exchange. Most of these predatory ATMs are in touristy areas. You can easily avoid them by using a bank ATM — or avoiding the tourist traps.
Buying currency from a bank. You can buy foreign currency from your bank before you leave for your destination. Ask for the foreign exchange department.
Pros: You’ll have the money before you leave.
Cons: The exchange rate may not be favorable, fees may apply to the transaction, and you might be in for some extra paperwork to get the currency.
Dollar billing. Some businesses, notably hotels, will offer to bill you in your own currency.
Pros: You’ll get your bill in dollars, so you’ll have a good idea of how much you’re being charged, and there’s no need to do any mental math.
Cons: Your credit card may still charge a currency exchange fee, or foreign transaction fee. Your exchange rate might not be competitive.
An exchange kiosk. These booths, conveniently set up at airports and train stations, give you access to foreign currency quickly.
Pros: If you need money fast, and don’t care about the exchange rate, it may be worth it.
Cons: Pay close attention to the terms, which may be onerous. In addition to a surcharge and fee, the “buy” and “sell” exchange rate may be far apart (this is called the spread). That difference is profit to the business. Also, they don’t always do coins. Use this as a last option.
Traveler’s checks used to be a terrific way to keep money while you were on the road. Not so much anymore. Even if you can find a bank that issues a traveler’s check, you may have some trouble locating a business that accepts them. Some banks may still take them. My advice: You probably do want to leave home without them.
Strictly speaking, a debit card is your ATM card, although some also can work as credit cards, offering some protections for purchases made. Remember, many businesses won’t accept an imprint from a debit card when you check in, so don’t try to travel with only a debit card. A debit card withdraws money directly from your bank account, and it may have a daily limit. Banks normally charge a flat fee for each transaction. But some now also add a conversion surcharge when you access an ATM overseas, up to $5 per transaction, and 3 percent for the conversion. Ouch!
If you’re making a day trip into another country and need a small amount of local currency, skip the coins. Currency exchange facilities at the airport or train station may not accept coins, and you’ll have to wait until the next time you’re in that country to use them. The takeaway? If you have coins, spend them if you can before you cross the border.
Beware of dynamic currency conversion (DCC), a practice that can allow an unscrupulous merchant to skim a little off the top of your purchase, at your expense. Here’s how it works: If you’re paying by credit card overseas, a merchant will sometimes ask if you want to make the purchase in dollars, “for your convenience.” If you agree, your money is converted from the local currency into greenbacks and processed by your credit card, but at an awful exchange rate. (Bizarrely, you may still have to pay your credit card a fee for a foreign transaction — so you basically convert the money twice.)
The exchange rate is terrible because a company is helping the merchant make the dollar conversion, taking what amounts to a commission, and splitting it with the business. And you are none the wiser. One reader sent me a hotel receipt from a recent visit to India to show me the evils of DCC.
In both cases, he’d been offered a dollar exchange, which he declined. And in both cases, the business converted his purchase anyway. At one property, his bill came to $663 with dynamic conversion. Using his credit card, he would have only paid only $630. At the other, his dynamically converted bill came to $206. It should have been $194. The reader had to ask his credit card to fix the exchange rate, and he prevailed in the dispute because he had photos of the receipt, which clearly stated he’d been charged in rupees.
Although the benefit of DCC is that you get to see exactly how much you paid in dollars, it is more than offset by the disadvantageous exchange rate. Always insist on being billed in the local currency when you’re paying by credit card.
Here’s a lesson that I learned the hard way. If you’re traveling anywhere — not just outside the country — take at least two credit cards, if you can. That way, if one is frozen, the other one will still work. Fraud detection algorithms can be triggered by anything from buying a latte across a state line to filling up your gas tank outside your county. The only way to be sure your cards will still work is to call your bank at least one business day before you travel. A representative should make a notation on your account, and your card won’t shut down when you have to settle the tab at that four-star restaurant in Paris.
When you travel, some businesses may accept Bitcoin, Ethereum, Litecoin, Dash or Monero — all forms of cryptocurrency. But there are two limits. Some forms of cryptocurrency may not be convertible to another currency, so you would have to convert to dollars and then to the local currency. And cryptocurrency is also highly volatile, which means the merchant (or you) could lose money on the transaction. Bottom line: Think twice before settling your bill with crypto.
No. Although wiring money is common in some countries, you may be asked to conduct something called a retail money transfer using a service like Western Union or MoneyGram. Wiring money is often used to pay for a vacation rental either in the United States or overseas, but it can also be used to settle the bill on a high-end vacation or package tour offered by a smaller, independent tour operator.
While it may be tempting to wire money in advance, and while the company may offer a deep discount for paying cash up front, I would strongly advise you not to do it. Once the money has been sent, there’s no way to get it back. I receive regular complaints from readers who have lost thousands, and often tens of thousands of dollars, to scammers who insisted on having money wired.
Credit cards come with all kinds of bells and whistles for travelers — everything from airport lounge access to a concierge service. But what do you actually need? The time to make a decision about what card to carry is weeks, and preferably months, before you go anywhere. It takes time to sift through the contracts and decide which card is best for you. You don’t want to make this decision with one foot out the door.
What to look for in a credit card:
Car rental coverage
This allows you to skip the optional car rental insurance when you rent a car, but note that often the coverage will be secondary, meaning that it kicks in after your primary insurance coverage, such as your auto insurance policy. Remember, you have to use the card to pay for your rental in order to benefit from the coverage.
Trip cancellation or interruption coverage
If your vacation is interrupted or canceled, you might be covered. Significant restrictions, including a clause for pre-existing medical conditions, normally apply, so you may still need to get an insurance policy. Some cards also insure you against accidental loss of life, limb, sight, speech, or hearing.
Baggage delay insurance
If your luggage is lost while you’re away, you can get reimbursed for emergency purchases, even when your airline, cruise line or motorcoach operator won’t help. Typically, the coverage will pay for one or two people to buy a change of clothes and toiletries.
Things you should consider not getting with your credit card:
The ability to earn mileage
Earning miles is always good for the travel company or credit card, but not necessarily a “win” for you. Personally, I recommend staying away from mileage-earning cards, not just because they encourage extra spending, but also because they may come with higher fees.
Cards for big-spending customers sometimes come with “concierge” services that help you book everything from event tickets to restaurant reservations. You may find these services useful, but in my experience, they are often redundant. Typically, you can get the same attentive service from a hotel concierge.
Discounts that have nothing to do with travel
Credit cards try to distinguish their product by adding special offers, such as discounts from wineries. It’s a nice perk, but does little to help you when you’re on the road.
The things your card definitely shouldn’t have:
An annual fee
You shouldn’t have to pay an annual fee for your credit card. Banks have other ways to make money from you. If the card you’re considering costs something, make sure it does something pretty amazing, that no other card can do. And if the benefits outweigh the costs, you have my blessing. (I have yet to find such a card, but there may be one out there. I’m open to it.)
A currency exchange fee
If you’re traveling overseas, get a card that exchanges your money without a fee. Some cards charge as much as 3 percent, and impose the fee on any transaction that happens across the border.
A high APR
Your Annual Percentage Rate (APR) should be between 8 and 10 percent. Anything higher than 15 percent, and you’re throwing away your money. Note that your APR may change if you make a late payment. Some cards offer a low — in some cases a ridiculously low — introductory APR. Pay attention to the rate after your introduction.
Many travelers swear by a money belt, a fabric strap for holding your passport and cash. Some travel experts even peddle their own branded belt for security-conscious travelers. There are variations of this solution, including socks and neckwear with pouches for storing valuables, but they’re not the most elegant solution. Retrieving something from them means partially disrobing, which is a hassle, and thieves know to look for hidden pouches on tourists. However, a belt is better than nothing. Another option, one favored by security experts, is the dummy wallet or pocketbook — a decoy containing a small amount of cash and IDs. If you’re ever asked to hand over your valuables, give the robber the bogus wallet. It’s better than taking off your clothes, and handing over your money belt.
Travelers are easy prey for “carders” who take illegal credit card impressions through a crime called cloning or skimming. It can happen almost anywhere.
I even had my card skimmed at a deli in Whistler, Canada. One reader believes her credit card was cloned when she made an in-flight purchase. The most common skimming site is an ATM, where magnetic strips and PIN numbers are harvested from unsuspecting customers.
Get a chip-and-pin card
These new credit cards use secure computer chips and personal identification numbers to make the card more secure. They’re commonly used in Europe, and available from some banks in the United States. They’re much more difficult to skim.
ATMs with skimmers are fairly easy to spot; they sometimes have a bulky extra layer of electronics where the skimmer is fraudulently installed. Also, a sign will sometimes advise you to input your PIN number slowly, so that the bad guys can be sure they got the right number. If you see a teller machine like that, report it to authorities, and don’t use it.
It’s a foolproof way to pay for items when you’re traveling. As long as you have the right currency — and can avoid the ATM, of course.
Your credit card purchases are regulated by the Fair Credit Billing Act, which limits your responsibility for unauthorized charges to $50, and protects you against billing errors, including charges for goods and services you didn’t accept, or that weren’t delivered as agreed, math errors, and incorrect charges. You can find out more about the FCBA at the Federal Trade Commission site.
The best way to avoid a dispute is to review your credit card statements as soon as you can, and to contact the merchant directly if you see something incorrect.
Find out if you’re covered
Review the FCBA if you’re planning to challenge a purchase. Even though the law has provisions that say the purchase price must exceed $50, and the transaction needs to occur within the same state as the cardholder’s address, or within 100 miles of the cardholder’s address, banks will often accept disputes for smaller amounts, or if the distance exceeds 100 miles.
Contact your bank
You’ll be connected with a special department that handles credit card disputes, and they’ll walk you through the process. Normally, there’s some paperwork to fill out, and your bank may ask you some routine questions about your purchase.
Keep all your receipts, and take pictures
Paperwork is extremely important during the dispute process. Any receipts, emails, or invoices you receive, and that may support your case, are critical. That’s not all: Photos or video recordings can also help the dispute department determine if the product you purchased was the one you did — or didn’t — receive.
Build an airtight case
If a company has violated federal or state laws, or breached its own contract, then you stand an excellent chance of prevailing in a dispute. For example, say your airline charges you a fee for your luggage, but then loses it. If you don’t get the fee refunded, it failed to deliver on its promise, and you should dispute the purchase. Nuisance disputes — say, a customer felt slighted by a server, and wants to dispute an entire restaurant bill — will go nowhere.
If your credit card sides with the merchant, appeal
You can appeal a decision made by your bank. I have never dealt with a traveler who has successfully appealed a denial, but it’s worth noting that there are provisions for an appeal in the FCBA.
If you lose, complain to the FTC, or sue
As a last-ditch effort, you can complain to the Federal Trade Commission, and sue if the dispute is not resolved properly. A court is your final appeal, but may be more trouble than it’s worth, especially if the merchant is far away. For more on chargebacks, check out my guide on credit card disputes.