It amazes me how many people endlessly scour airfare comparison and hotel booking sites fighting for the best deal, squeezing out a few more dollars here and there, but then waste an additional 5%-15% on the cost of their trip by paying an easily avoided “tax.” Many international travelers care about the prices of things, but never consider how they are paying for them. Once you leave the country, deciding how to open your wallet can affect your trip cost more than the price difference of an airplane ticket or hotel room.
For twenty years, one of the questions I’ve been most frequently asked by travelers is “What’s the best way to exchange money overseas?” It’s a very good question, but it’s only half the story. My longstanding answer has been to use your ATM card and take cash out of bank machines (but only from actual banks, more below), anyplace you go in the world that has them, which is almost everywhere. Conversely, I suggest never actually changing cash, either at banks or foreign exchange specialists. But it gets more complicated than that, especially since the majority of transactions involve no cash at all.
Credit card comparison website CardHub.com just did its annual market study of the cost variances in the different ways to spend money overseas, and the results, while they again supported these longstanding travel truths, had a few surprises.
Before we get to the numbers in the CardHub study, let me expound a little more on the general issue of spending money abroad. First, about the humble ATM. In addition to having as good or better rate than an actual bank teller, the advantage to getting cash this way is that you can do it repeatedly. You can take out $300 worth and a couple of days later do it again. All of the other cash alternatives, either exchanging dollars for Euros (or whatever) first or bringing American dollars to exchange later mean carrying all the cash you could possibly need for your trip the entire time, which obviously exposes you to a lot more risk of theft or loss. This was the main reason why before computers travelers checks were invented, but given that you still have to pay a conversion fee and often pay for the checks themselves, there is simply no reason to use them over an ATM (and almost no one does anymore). You should be getting interest on your bank account until you withdraw money via ATM, but using travelers checks is the opposite, loaning your cash to the bank and paying for the privilege.
However, in recent years, as more and more savvy travelers have realized ATMs are the “best” way to go, some places, especially European airports, have taken advantage by charging different and much worse exchange rates at machines aimed at international travelers. Veteran consumer affairs travel writer Ed Perkins reported for the Chicago Tribune that at London’s Gatwick, the Barclays Bank ATMs he was used to had all been replaced by machines from foreign currency exchange specialist Travelex, the same company that operates many of the high-fee (they call them “service charges”) airport kiosks. According to Perkins, the machines promised “Free Withdrawal” but charged “a really bad exchange rate - it looked to me that you’d lose about 10 percent to 11 percent.”
Looking into this further, he found that the problem was widespread at airports across Europe and that Dublin was the only major gateway still using “big bank” ATMs in its arrival hall. In places like Paris, Amsterdam, Madrid, Milan, Rome and Zurich, arrival hall banks machines have been entirely replaced by ATMs from various foreign exchange companies. While these machines do accept MasterCard and Visa, they charge different rates than those on the brands’ official network, and Perkins suggests using the two card companies’ online locators to identify “real” machines. Six months ago, Ric Garrido from frequent traveler blog Boarding Area checked out a Gatwick ATM operated by ITT MoneyCorp and compared it against one run by HSBC in the city center, and the rate at the airport machine was a stunning 11% higher. His other comparisons ran over 14% more than alternative ways to pay. For this reason, if you can wait until you get into town, I always suggest using an ATM at an actual bank. Some European airports still have real bank ATMs elsewhere in the terminals outside the arrival hall if you want to hunt them down.
But cash is only one slice of the story, and probably the smallest. Chances are good that you are going to use your credit card more than currency, and you should, as there are myriad advantages. First, you can carry less cash. Secondly you get the security behind your transaction, and if somehow ripped off, like merchandise that never ships or a hotel overcharge, you can call your bank and dispute it. Some credit cards increase warranties or offer loss replacement on purchased goods. Finally, you get whatever points or rewards your particular credit card offers, usually some benefit to the tune of an additional 1-2%.
But the problem is that many, if not most, credit cards have hidden surcharges for foreign exchange transactions, which means that using one bank’s card over another, or even different affinity cards from the same bank, can actually make your transaction cost more or less than slapping down another piece of plastic. Two of the best travel credit cards on the market, the Chase MileageExplorer Club, specifically for United frequent fliers, and the more general Sapphire card, both of which I have and use, have no international transaction fees. This is increasingly an important thing to look for in at least one card in your arsenal, the one you should use overseas. American Express waives fees on its high-end Platinum and Centurion consumer cards, as well as branded Delta cards, but charges a not insubstantial 2.7% surcharge on all foreign charges on many of its other consumer cards, including Premier Rewards Gold.
So let’s look at the CardHub study.
The first thing it shows, no surprise, is that using Visa and MasterCard branded ATM/Debit cards with no international transaction fee to get cash was the best way to go.
A close second was making purchases using credit cards with no international transaction fee, which cost 0.44% more than the benchmark best option, Debit/ATM.
The next best route was exchanging currency in advance at a credit union, which charged both a worse exchange rate and higher average transaction fee, making it nearly four percent (3.9) more costly then the debit card option. But that still slightly beat regular banks, which averaged 4.08%. According to CardHub, and not surprising to me, the worst major performer was Travelex, which they say is the largest US currency exchange shop. Found in airports and other travel venues, they came in at a whopping 7.31% over the best option. The good news is that in the four years CardHub has been repeating this study, Travelex actually closed the gap quite a bit, its surcharge dropping by almost half, while credit unions got more expensive.
In conclusion, I will note that none of this is ever as simple as it seems. Debit/ATM and credit cards are the way to go, but it greatly matters which issuer you use. With credit cards, no international exchange fee is the big key, but in the big picture, you also need to consider annual fee, rewards and other bonuses. For some travelers, the baggage savings that come with an airline branded card may outweigh other considerations (though most airlines still give you a free checked bag internationally). Some cards offer cash back. It may make sense to have an annual free card with no foreign transactions that you use only for overseas charging, and a more rewarding card to use at home where foreign transaction fees are irrelevant.
For ATM/Debit cards, it matters greatly whether or not you are paying a per withdrawal transaction fee, which can be three dollars or more. If you are taking out $200 a pop and paying $4 to do that, your effective transaction cost just went up by a not insignificant two percent. I use a small local bank which offers me a no monthly fee ATM card and rebates all withdrawal fees internationally as long as I keep a certain amount in my checking account. Many banks have similar offers, and according to CardHub, at the national level the best ATM issuer for no fee, no transaction cards is Charles Schwab Bank. The complete details of the study, including rates charged by individual major banks and credit unions, along with their picks for best credit and debit cards and special offers for new applicants, can be found at the site.
Bear in mind that sites like CardHub typically get bonuses from issuers when you apply for the card offers they have, but this doesn’t cost you anything, and it incentivizes credit card comparison sites to constantly reevaluate and promote the best offers available.
Travel safe!
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