While it may not be the most interesting travel topic, the subject of money is a very important one to anyone finding themselves in a foreign country – whether it is for a weekend or after a permanent move. Circumstances will differ for each reader of this website, but by organizing this list into categories we will attempt to point you in the right direction so you can find the best option(s) for your own situation.
Image obtained Flickr.com under Creative Commons (c) Philip Brewer
No matter how you plan to access and use your money while abroad, do your homework first. Make use of an online currency exchange rate calculator so you know what the exchange rate is for the currency in question – both before you travel and while you are in the country. Of course there’s no guarantee (and sometimes little chance) of getting that great rate, but at least you know what you should be aiming for.
Category 1: Large pre-travel purchases and general use while abroad – credit cards
Even before you leave, the chances are you’ll be forking out quite a lot of money for flight tickets, advance payment of hotel rooms or car rentals etc. It’s a good idea to use a credit card for such purchases – especially if you have a card linked to a frequent flyer programme or a hotel loyalty scheme. This is a good way to earn those precious points. Other advantages with credit cards are that you won’t have to pay for purchases until you get your statement and you’ll thus be benefitting from interest-free credit if you pay in full or the ability to divide up the cost over time (but watch those interest charges). Insurance cover is often included when using a card to pay for holiday expenses, but you should always have a separate travel insurance policy too.
When you are abroad if you charge as many bills as possible to your credit card (excluding cash withdrawals) you’ll also benefit from conversion at the interbank exchange rate which is generally the most favourable. Again, use your loyalty scheme card if possible. Note that the majority of credit card issuers charge currency conversion fees for each foreign currency purchase (usually 1% for Visa or MasterCard and an extra 1-2% for themselves); but these fees are generally lower that for converting cash or travellers cheques at an exchange bureau or bank. If you look around you may also find cards that charge no foreign transaction fees either.
Image obtained Flickr.com under Creative Commons (c) Natloans
There are some downsides though. Credit card acceptance varies, and depending on your destination you may find that the hotel, shop or restaurant won’t take your card – which is why you should always carry cash too. Try to resist withdrawing money from an ATM using a credit card as there are extra charges for doing so and interest usually accrues from the time of withdrawal rather than the statement date. US travellers will find that merchants in Europe, Asia and South America expect them to have a “chip and PIN” card which contains an embedded chip that transmits information to a merchant, which the consumer then verifies by entering a PIN. Cards only having magnetic strips will still work – provided that someone can swipe them for you. In other words, petrol stations and ticket machines which only have an insertion slot and numeric keypad are going to be a problem. Until US banks (and others) begin issuing chip and PIN cards you’ll need that cash back up again.
Before you travel, find out all the charges you may incur by using your credit card, both in local currency and your own. Check before each journey in case policies have changed. Don’t forget to inform the issuer of your plans – when and where you will be going. Otherwise such unexpected international activity can trigger a fraud alert and your card may be blocked. Make sure you have a contact telephone number to call if the card is lost or stolen – it’s a good idea to take two cards in case you should lose one.
Note that it has become common for merchants in Europe to allow you to pay in your own currency rather than the local one – don’t do this as the exchange rate will be terrible.
Some hotels and car hire companies may reserve a charge on your credit card for the full amount they expect you to be charged or a deposit against loss or damage. This can wipe out your credit in one go and is another good reasons to take multiple cards. When you settle your bill the deposit will be removed but make sure you receive confirmation that this has been done.
Fraud does occur so watch what the store owner does with your cards, check the transaction and keep your receipts so you can check your statement. This will allow you to dispute any incorrect charges.
Image obtained Flickr.com under Creative Commons (c) Bernard Oh
Category 2: Withdrawing cash in local currency – debit cards
You will benefit from the same interbank exchange rate when you withdraw cash from an ATM with your debit card as when you make a credit card purchase. These days you can find an ATM in most major cities and airports all over the world so this is usually the cheapest and most convenient way to get cash in the local currency.
As you’d expect, cash withdrawals will usually be subject to currency conversion fees, foreign ATM fees or other charges from your bank. While debit cards work in the same way as regular credit cards when paying for goods, if your card is lost or stolen you may not have the same protection. In any case you’ll need to notify your bank as soon as you discover your card is missing.
Make sure you will be able to use your debit card in foreign machines – the best bet is to have a Visa or MasterCard debit card or to ensure that the card you have is connected to the global Cirrus or PLUS networks.
Note that car hire companies may not allow you use a debit card for the deposit – although you can of course pay the final charges this way.
As with credit cards, let your bank know of your travel plans to avoid having your account frozen due to ‘unusual activity’.
Category 3: Cash (obtained in advance)
Always have some local cash in your pocket so you can get by until you find the ATM. Perhaps the only machine at the airport is broken – you’ll need to get into town so be prepared
It’s unlikely you’ll get a good exchange rate at home and you’ll often be hit by extra fees and charges, but for a small amount of cash you’ll not need to worry too much. A good rule of thumb is to take about USD 150 worth of foreign currency in cash.
Category 4: Emergency backup if you can’t find a functioning ATM or require a secure alternative to cash – cheques and travel cards
Despite the fact that travellers cheques feel very last millennium they do have the advantage that they should be replaced if lost or stolen. This makes sense as a backup measure. But don’t take this replacement service for granted – I had cheques stolen years ago in Amsterdam and the issuer took several weeks to carry out their ‘enquiries’ – leaving me in a very difficult situation. Being a more mature traveller rather than a backpacker helps though and I doubt I’d have the same problems now. If you can’t find an ATM travellers cheques are a good option. A newer alternative is the travel card of the sort offered by Visa and Travelex. These are also prepaid but can be used like credit cards for purchases and cash withdrawals.
You won’t be getting the same exchange rate as for debit or credit cards and you’ll have trouble paying for purchases with travellers cheques these days. There are a lot of fees to pay too – keep these to a minimum by cashing them at the issuing bank (i.e. Amex offices for Amex travellers cheques). Travel cards give you better exchange rates, but again there are some creative charges to pay.
Image obtained Flickr.com under Creative Commons (c) Sandy Austin
Category 5: Refilling your travel kitty, working abroad but being paid at home, vehicle or property purchase – money transfers
Now let’s look at what you should consider when you need a larger amount of money. Perhaps you’re on a long-term trip and you need a refill from your savings at home. You may be volunteering in a foreign country and being paid for your expenses by transfer into your domestic bank account. You could even have a job paying a full salary but be working for a company with its base in a different country to where you are stationed which prefers to pay you in your own currency. Then there are the really big purchases – that car or truck for onward travel and later sale; how do you get your hands on the thousands of dollars you need? An even more demanding situation is if you have decided to buy that dream house in the sun – in this case a couple of percentage points in your favour when converting your precious savings into foreign currency can amount to a large amount of money – and go a long way towards furnishing your new abode. In all these circumstances you need to consult a reliable and professional company to help you transfer money at the lowest possible cost. Once again use a currency monitoring service to make sure you know the latest rates so that you can make the transfer at the best possible time. We recommend contacting Azimo when you need to transfer money abroad – they can help you save a lot compared to a bank or high street lender.
Category 6: Working and living abroad long term – open local account, maintain tax free savings account at home?
If you’re planning to stay in a foreign country for a long period of time (or even emigrate) then you’ll need to obtain a local bank account. You can usually get an ATM card right away and a credit card after a while. You’ll also need an account if you get a job in order that your salary can be paid. It’s always a good idea to build up as much banking history as possible for the future, so choose a bank you expect to stay with – one day you might be approaching them for a mortgage. While it’s difficult to be specific about every country, one tip is that being resident abroad may entitle you to hold a tax-free savings account back ‘home’. Rules differ, and the taxation consequences of this differ wildly depending on the agreements between your home and host countries so you need to investigate all implications first. With interest rates as low as they are at the time of writing you may not feel it’s worth the hassle but do give it some thought.