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Some thoughts about spending money while traveling abroad

Two weeks ago, while getting to know our fellow Mexico City pilgrims, the topic of how to deal with spending money came up. This is a topic where it seems everyone has his own unique set of opinions based on his own unique set of experiences. I didn’t share all my thoughts with the group, but I’ll share some of them here.

Traveler’s checks

One of the guys in the group asked if it would be a good idea to bring traveler’s checks. Some of us got a chuckle out of that. We got an even bigger chuckle when, a few moments later, one of the young women asked, “What’s a traveler’s check?”

Much to my surprise, traveler’s checks still exist. For those of you who might be too young to have ever seen one, a traveler’s check looks a lot like a regular check, but with two signature lines. You sign the first line immediately when you receive the check. You also fill out two booklets with all the serial numbers from the checks, one of which travels with you and the other you leave home. When you redeem a check at a bank or exchange desk or with a merchant, you countersign the check on the second signature line. The recipient verifies the two signatures match before accepting the check. You then cross that check’s serial number out of the booklet you’re carrying with you. If you followed all the instructions and ever had your unspent traveler’s checks stolen or lost, you could, in theory at least, get them refunded.

A vintage American Express Traveler’s Cheque ad. (Photo credit: Flickr user Jamie.)

A vintage American Express Traveler’s Cheque ad. (Photo credit: Flickr user Jamie.)

Once upon a time, even as recently as the early 1990s, merchants routinely treated properly countersigned traveler’s checks just like cash. During my first trip to Paris in 1989, I used traveler’s checks almost exclusively, exchanging them for French francs — remember those? — as needed at any bureau de change, for a fee of course. As a teenager working at a McDonald’s, where I earned much of the money for that trip to Paris, I also saw customers use them from time to time. I also remember using them on a trip to Germany in 1991.

However, by the time I visited Europe again in 1994, a lot had changed. ATMs were on every street corner in every major city and in the center of every small village. Many small merchants were also accepting international credit cards by then. The traveler’s check was no longer particularly useful, and exchanging foreign ones had become more trouble than it was worth for most small merchants and currency exchanges.

Personally, it’s been close to 20 years, if not longer, since I’ve bought traveler’s checks. The last time I brought them for a trip abroad, I ended up redeeming all of them at the bank when I returned home. Unless you’re traveling somewhere with little or no infrastructure, I wouldn’t recommend bothering with them, and even then, it might be a lot easier just to carry some extra cash.

Buy foreign currency at home

Much of the conversation two Saturdays ago concerned where to buy Mexican pesos before traveling. This part of the conversation wasn’t terribly relevant to Kathryn and me, since we have enough leftover pesos from our last trip to Mexico to get us through the first several days.

I certainly wouldn’t discourage anyone from buying some foreign currency at home before traveling. There’s a certain piece of mind that comes from having local currency the moment you land in a faraway place, and it’s tough to put a price on it. Also, there are certain circumstances where it just isn’t feasible to get local currency, or a sufficient quantity of it, immediately upon arrival. For example, on our last two visits to Montpellier, we paid the landlord in euros just after our arrival. We probably could have scraped the cash together with a few local ATM withdrawals, but we didn’t want to take the chance, so we bought euros here in Phoenix and brought them with us. Likewise, in South Africa a few years ago, we knew we’d need some rand for a driver immediately upon arrival, so we brought some with us. It turned out to be totally unnecessary, as we were surrounded by ATMs in Johannesburg during our layover and again in Cape Town when we arrived.

On the other hand, in another scenario, we didn’t bring local currency with us, and it would have been very helpful if we had. When we landed in Buenos Aires on the ferry from Colonia del Sacramento, the ferry terminal, much to our surprise, had neither an ATM nor a currency exchange. Having not a single Argentinian peso on us made it difficult to get a taxi to our hotel. In retrospect, the long lines we saw at the currency exchange in Colonia made more sense.

Mexico City Airport, Terminal 1, arrivals level, ATM locations. (Screenshot from AICM.)

Mexico City Airport, Terminal 1, arrivals level, ATM locations. (Screenshot from AICM.)

In most places, though, it’s easy enough to get local currency when you arrive, either at a bank or currency desk or an ATM. I checked the map for the airport in Mexico City, and there are no fewer than 11 ATMs on the arrival level of our terminal, as well as multiple currency exchanges. In my experience, coming from the United States, unless you live near a border, most banks aren’t set up for currency exchange. Unless you’re exchanging a very small amount of a very common currency — say 50 euro or 500 Mexican pesos — you’re probably going to have to order the currency and wait at least two business days. If you’re not a customer at that bank, be prepared to pay a staggering fee for the service — I’ve paid as much as $12, and it could be more — and even if you are a customer, be prepared to pay a retail exchange rate that may be 6% or more higher than the wholesale rate your credit or debit or ATM card may give you.

In short, if you can wait, wait.

Bring hard currency

I’m writing from the perspective of a U.S. citizen and resident who lives life in dollars, but this applies to anyone who can get his hands on hard currency, like euros, Japanese yen, British pounds, and so on.

Having a bit of hard currency when you arrive in a foreign place can get you out of some jams, especially if it’s in smallish bills. For example, in the Buenos Aires situation I mentioned earlier, we were told some of the cab drivers would accept U.S. dollars as payment, but we’d have to negotiate with the individual drivers and be willing to surrender the cab to someone paying in pesos. We ended up just taking Uber instead.

In a more extreme example, in Poland back in 2006, due to a recent rash of fraud, my credit union had blocked ATM usage everywhere in the entire country, a fact of which I was unaware until I got there. For the next several days, I used credit cards for everything I could, and I exchanged my backup U.S. dollars for zloty at a currency exchange near the train station. Luckily, I had a soft landing from that hard lesson, and since then, I’ve never left the county, much less the country, without some amount of backup U.S. currency.

Debit or ATM cards

If you want to be pedantic, debit cards and ATM cards are not exactly the same thing, although nowadays in practice one card serves both functions, so I tend to use the terms interchangeably.

My personal preference is to get nearly all my local spending money from ATMs while I’m in country. The problem with this — as I hinted above when I mentioned the situation in Poland — is that most of us have only one debit card, which is tied to our primary bank or credit union account. Unlike credit cards, we don’t tend to shop around our debit cards or carry more than one in our wallets. This can lead to some unpleasant surprises, as there are at least three fees you can be charged for using a debit card to withdraw cash from an ATM in a foreign country:

  • Usage fees from ATM owners: In many cases, the ATM owner will take a fee from you for using their ATM. In my experience, while the fees tend to vary widely from country to country, they tend to stay within certain ranges within countries. For example, I’ve rarely seen an ATM owner fee at all within the Eurozone, it tends to be the equivalent of about $1.50 in Mexico, and it was a rather shocking $5 or more in Uruguay and Argentina.
  • Usage fees from your bank: Your own bank or credit union may also charge you to use an ATM that it doesn’t own. Some banks will waive fees for the first several of these; some will not. Personally, at one point in the past, I’ve been charged a vomit-inducing $4 for foreign ATM transactions, with no freebies. It’s perhaps no surprise that I no longer do business with that bank. (It’s perhaps also no surprise that the bank has since been merged into Wells Fargo.)
  • Foreign currency fees from your bank: In addition to the transaction fee, your bank or credit union may also charge you a percentage fee for making a foreign currency transaction, even if you take out U.S. dollars abroad. I’ve seen these fees go as high as 4%.

It’s a good idea to check these fees before you travel abroad so that you don’t suffer any unwarranted trauma when you seen your next bank statement. Also, if you’re willing to shop around and maintain a modest deposit account somewhere other than your primary bank or credit union, you may find you can get some, most, or even all of these fees reduced to zero. In fact, Kathryn and I keep two separate deposit accounts for exactly this reason — which also gives us two extra backup debit cards in case the Poland situation ever happens again.

However, even if you don’t or can’t shop around, consider the alternatives before ruling out the debit card for ATM withdrawals. If you’d gotten $150 worth of Argentinian pesos from an ATM and paid the worst-case fees I suggested above, you would have paid $5 to the ATM owner, $4 to your bank for the transaction, and $6 to your bank for the foreign currency fee, making it a total of $15. If you bought the pesos at home and paid the worst-case fees from that section, you would have paid $12 for the service fee and $9 for the retail exchange spread, for a total of $21. Math is hard, but rewarding!

Another thing worth mentioning: I don’t know if this is the start of a trend, but I found a few merchants in Uruguay last year had posted signs saying they were accepting debit cards but not credit cards — which is the opposite of our expectation here in the U.S. With credit card merchant fees being as they are, I wouldn’t be surprised to see more of this in the future. In order to take advantage of Uruguay’s tax refund scheme, we used our debit card at one such brewpub in Montevideo, which was probably the first time I’d used a U.S. debit card for a point-of-sale transaction outside the U.S.

Credit cards

As much as I’m leery of using credit cards in general, it’s probably a no-brainer to use your credit card, when prudent, to spend money abroad. However, I would suggest it’s smart to consider the situation before pulling the credit card out of your wallet.

Here in the U.S., paying for a meal in a restaurant usually means leaving your credit card on a table where every passer-by can see it, then waiting for several minutes while your server disappears into who-knows-where doing who-knows-what with it. Long story short, I stopped using credit cards in most U.S. restaurants years ago and now pay with cash. In some other countries, though, it’s often the case the server will come to your table with a remote point-of-sale terminal, insert your card in front of your very eyes, and then hand you the terminal to enter your PIN. If that’s what’s going on where I’m dining, I don’t hesitate to use my credit card. (Honestly, this applies to debit cards too, if your preference is not to borrow money to eat dinner.) It does require a bit of situational awareness to recognize how other customers are settling their checks before settling your own. If every other customer is paying in cash, you may want to ask yourself, why?

As is the case with debit cards, many banks and credit unions will charge a foreign currency fee when using a credit card abroad. Some of the fees are modest enough that you may wish, for the sake of convenience or rewards points or whatever, to use your favorite card regardless. However, if your credit is respectable, it’s not terribly difficult to find credit cards that will get this fee down to zero and also not charge an annual fee. Unlike debit cards, getting an additional credit card doesn’t require a new deposit account, so it’s not uncommon for travelers to maintain several to choose from at any given time.

Final thoughts

For me personally, the solution for having spending money when I travel abroad is, in fact, a mix of all of these things — except traveler’s checks — depending on the situation. Hotels and car rentals almost always go on a credit card, since both typically require authorizations far greater than the settlement amount. Meals and incidentals are done with local currency, debit card, or credit card on a case-by-case basis. Sometimes I get currency ahead of time, and sometimes I’ll wait until I get there, depending on how well I know the place or what my needs will be when I land. Sometimes I’ll get local cash at an ATM, but if the rate is decent and the exchange desk is convenient, I may convert some hard currency too. If I find a merchant who’s willing to give me an advantageous exchange rate for my dollars, I’ll settle that way. There’s no one correct answer.

Also, if you’re traveling abroad for the first time soon, and after reading this post you’ve started to become worried you’re going to pay way more in bank fees than you expected, relax! In the overall scheme of things, it’s probably not going to amount to all that much. On our two-week trip to South America last year, all the various bank fees cost us somewhere around $30, or roughly the price of modest dinner for two in Montevideo.

One last thought: In 1989, on that trip to Paris I mentioned earlier, many in the tour group carried cheap pocket calculators to make currency conversions easier. Nowadays there are currency conversion apps for your smartphone that are updated minute-by-minute. There are good ones for free, and even better ones for less than $2. Do yourself a favor and get one!