There are three kind of currency most travelers carry abroad: traveler's checks, credit cards and ATM cards. Ideally, the option you choose should allow you to get the best exchange rates, save the most money, and offer as much convenience and safety as possible. However, each payment method offers a number of advantages and disadvantages you should carefully weigh before making your decision.
Traveler's checks are among the most popular and safest payments options for individuals traveling outside the country. Most U.S. banks sell traveler's checks for a commission of 2 to 5 percent. If you purchase them where you have a bank account, the fee is generally waived.
Stick to purchasing well-known brands like American Express travelers' checks. They're recognized worldwide and have a counter-counterfeit feature the vendors like. It's best to purchase checks in denominations of $20 or $50, so you can exchange smaller amounts of money.
Traveler's checks offer much of the same portability, ease and convenience as cash. But if your checks are lost or stolen, they can quickly be replaced. You should keep your traveler's check receipts separate from the actual checks, and keep up with which ones you've used by logging it in your check register. This will provide the information you need to get your checks replaced usually within 24 hours.
Traveler's checks also have a number of disadvantages. Traveler's checks in U.S. dollars can be converted to local cash at banks and most train stations, but they may not be accepted in small towns and rural areas. And even if they are issued in the local currency, many small hotels, shops, and restaurants will not accept them, so you may have to cash them at a bank. Also, when you use traveler's checks, you may get lower exchange rates than if you use a credit or ATM card.
Credit or charge cards are becoming a favorite alternative to traveler's checks. In fact, their worldwide acceptance of credit cards and the popularity of ATM's make it possible to take an overseas trip without buying traveler's checks or foreign currency before leaving home.
One of the biggest benefits of using credit cards is that they are multifunctional and they give you the best exchange rate at the bank. Y ou can use them for purchases, as well as for getting quick cash. Traveling with credit cards is extremely easy, convenient and safe. If your credit cards are lost or stolen and used by a thief, you generally can't be held responsible for more than $50 in fraudulent charges. And some credit card companies will replace your card sometimes overnight at no charge if they're lost or stolen while you're traveling abroad.
Also, with credit cards, you have a complete list of your purchases for your records. This makes it easy to keep track of transactions so you can maintain a budget. On the other hand, credit cards also give you the ability to pay for impulse purchases without having to worry if you have enough cash on hand.
Pre-paid credit cards from companies like Visa, MasterCard and American Express are another credit card option available to overseas travelers. These cards are pre-loaded with cash and can be used everywhere Visa or MasterCard is accepted. Because they're pre-paid cards, spending limits are set by the amount of money you load onto the card.
An obvious disadvantage to using credit cards is that they're not accepted everywhere. That means you can't stay at many of the cheaper lodging that only take cash (unless you already got cash with your credit card at the bank).
And although the foreign bank will give you the best exchange rate with a credit card, your bank will charge you an extra high handling fee on overseas transactions. According to Bankrate.com, these fees range from 1 percent for Visa and MasterCard to 2 percent for Citibank, Chase Manhattan, Bank One, Bank of America, Providian and Wells Fargo. Capital One, SunTrust and First Union/Wachovia are among the few banks that don't tack on extra fees for overseas transactions.
Another down side to using credit cards is the potential to over spend. Historically, people who travel with a credit card as their primary source of payment tend to spend more and toss their budget to the wind. Then when they return home from their trip, they have a huge surprise waiting for them an overblown credit card bill.
ATM card are being touted by travel industry experts as the way to go. Your bank ATM card is a good way to get foreign currency at the same favorable exchange rates available with credit cards. By using an ATM card, you can benefit from the wholesale rates available to banks. These are much better than the rates offered by change bureaus, hotels and businesses that will accept foreign money.
ATM cards are becoming more widely used around the world; they're accepted wherever you see the Visa, MasterCard or other logo printed on the card. ATM cards allow you to get money after hours and on weekends when the banks are closed and still get a good exchange rate, instead of going to a money exchange office.
While ATM cards are safer than using cash, they not nearly as secure as using credit cards or traveler's checks. And i f your ATM is the type that combines ATM and credit card, you might want to consider asking your bank for a stand-alone ATM card. If your ATM/credit card is lost or stolen it doesn't have the maximum $50 insurance buffer as a credit card. So if your card gets stolen, your checking account could be wiped out with no recourse.
ATM cards also draw extra charges for international transactions the same way credit cards do. Major banks charge up to $3 for each ATM withdrawal and 2 to 2.5 percent on debit card purchases.
To decide which form of currency will best meet your needs while traveling, consider your individual situation. Think about where you're going and the possibility of finding ATM machines, banks, money exchange offices, vendors or lodgings that take credit cards. If you're embarking on off-the-beaten-path traveling, consider taking cash and traveler's checks. For longer trips, you'll need more traveler's checks.
But if you are going to be around western countries, or in the large Third World cities, you can consider any combination of cash, traveler's checks, credit cards or ATM cards. It all boils down to whatever you feel is the most comfortable, convenient and safe for you to carry.
To avoid being caught of guard by a large credit card bill, determine what you owe ahead of time and pay your bill while you're abroad. You could call your credit card company, but this would result in an international phone charge. Or you could access your credit card account via the Internet if you can get your balance that way, but this would result in local phone charges. Instead, you can easily figure it out yourself.
Here's how: First, determine your credit card's billing cycle so you'll know when a bill is due. Often, credit card billing cycles are 30 days long, with the bill due 20 days after the close of the billing cycle. To learn what your billing cycle and due date are, read the fine print on your credit card agreement or a previous credit card statement. Mark the close of the next billing cycle on the calendar.
Next, after the close of that billing cycle, add up the charges you made on your card during the cycle. Convert your local currency charges to dollars, using the current exchange rate from a local paper. This will give you a good estimate of the amount you owe on your credit card during that billing cycle. Then add a cushion of $25 to offset exchange rate fluctuations that may affect your bill. Mail your check, with the account number written on it, to the credit card company in time to arrive before the due date. (You don't need to wait for your bill.)
Be sure to include a letter containing your account number, the amount of your check and the billing cycle due date for the payment you are making. If you're using a bill-paying service instead of mailing checks, authorize payment at least five business days before the due date to insure that your credit card account is credited in time to avoid finance charges.