Getting cash abroad seems simple enough: Head to an ATM, punch in your PIN, and out come the euros -- or pounds or pesos. And at least in well-traveled destinations, merchants and restaurants take Visa or MasterCard, so you don’t need to worry about having all that much pocket money. But you could get socked with fees if you don’t take steps to minimize them.
Debit cards. You can avoid ATM fees by having an account with a bank that has foreign branches or that rebates all ATM surcharges. Otherwise, your bank and the foreign bank will each impose a surcharge of as much as $5. (You will still have to pay a foreign-currency conversion fee, generally 3% of the amount you withdraw.)
Bank of America customers can avoid ATM fees at Global Alliance member banks in eight countries. Citibank account holders pay no fees if they withdraw cash from one of its more than 10,000 ATMs worldwide. Fee-free withdrawals are also available to HSBC Bank customers in the 88 countries where it has branches. Both Charles Schwab and Fidelity rebate ATM fees worldwide to clients who use the Schwab Bank or Fidelity mySmartCash debit card.
Credit cards. If you use a credit card, you get the wholesale exchange rate rather than the retail rate. That can save you, for example, $7 on a 100-euro purchase. Most issuers of Visa and MasterCard cards impose foreign-currency conversion fees of 3% on overseas purchases. American Express adds a 2.7% fee. (You pay a 3% conversion fee if you use your debit card for purchases.)
You can, however, avoid or minimize foreign-currency conversion fees by carrying the right credit cards. You pay no fees if you use a Capital One card, the Pentagon Federal Credit Union’s Premium Travel Rewards American Express card or the HSBC Premier World MasterCard. Fidelity Rewards American Express cardholders pay only a 1% fee.
Chase and Wells Fargo customers can avoid the 3% conversion fee if the retailer converts your purchase to dollars (you may have to ask). But the exchange rate the merchant uses may be closer to the retail rate than to the wholesale rate that Visa and MasterCard use.
Prepaid debit cards. Visa’s TravelMoney card and the TravelEx MasterCard Cash Passport card are available in multiple currencies at banks, airport kiosks, AAA clubs or online. The purchase fee varies depending on where you buy it and the amount you spend. For example, TravelEx charges $9.95 unless you buy at least $250 in foreign currency. And the exchange rate isn’t as good as the wholesale rate. But the cards are reloadable, may be canceled and replaced if stolen, and do not expire.
American Express Travelers Cheques are refundable if lost or stolen. They’re available denominated in dollars as well as euros, British pounds, Swiss francs, Japanese yen, and Canadian and Australian dollars at banks, credit unions, AAA clubs and American Express offices. Fees for purchasing and cashing them vary depending on location. Banks generally charge 1% to 2% of the value of the checks and often sell them only to customers.
Most U.S. banks will sell you foreign currency, but they charge the retail rate. In major cities, a bank may have the currency available at its main office. Otherwise, the bank can order it, or you can complete the transaction online or by phone. Some banks, such as Bank of America and Citibank, sell only to their customers; Chase, Wachovia and Wells Fargo sell to everyone. You might have to pay a fee (typically $5).
Plastic problems. Swiping your debit or credit card might not work at an unattended gas station or vending machine, or in a small-town store. Even though MasterCard and Visa rules require that all merchants accept magnetic-stripe cards, Europe is moving to a system of cards embedded with microchips, and some card readers cannot process the magnetic-stripe cards used in the U.S.
A recent study by Aite Group, a financial-services research firm, of more than 1,000 U.S. cardholders who traveled overseas between 2006 and 2009 found that 16% of those surveyed experienced a problem when a payment device did not accept magnetic-stripe cards. Nick Holland, author of the Aite report, expects to see a new travel-friendly credit card introduced in the next few months that has both a chip and a magnetic stripe; the TravelEx prepaid debit card will have both as of this fall.
One more thing: Remember to notify your card issuer that you will be traveling abroad. If the issuer suspects fraud and you aren’t at home to answer its queries, your plastic could suddenly lose its purchasing power.