Traveling Abroad – Leave Your Cash At Home!

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My friend, who is biking through France in a couple of weeks, inspired me to write this post.  Needless to say, I am jealous.  However, it has motivated me to offer some useful advice.

Let me start by acknowledging that how Brexit will affect your European travel is above my pay scale. However, I will say that for those traveling to the U.K., dollars are currently worth a lot more in the immediate aftermath of the Brexit vote.  Shop away!

Now that summer is officially here, many more of you will be heading to fabulous destinations, some with your kids and others without (lucky you :-) ).    If any of your trips include traveling outside the U.S., let me provide my thoughts on why using your credit cards (and/or charge cards) abroad is better than using cash.

Why should you use a credit card instead of cash when traveling internationally?

There are many benefits to using credit cards over cash when traveling abroad.  Here are a few:

1.  Obviously, if you use cards, you can carry less cash!

2.  Those who are reliant on cash may be subject to maximum withdrawal limits and fees from ATM machines.

3.  When abroad, if your card gets lost or stolen, you can likely replace it while still on your trip.  Note that you should have a backup card to use in the interim.

4.  You get a more favorable exchange rate when you use your card over cash.  (See more about this feature below).

5.  Oh, have I mentioned that you EARN REWARDS using your cards?  LOL.  You do not earn points, miles or rewards using cash!

Ok, if I convinced you to use a credit card on your trip, which card should you use?

You should try to use a card that has no foreign transaction fees.  Foreign transaction fees are the fees that a bank charges to convert your international purchases into U.S. dollars. Not every credit card charges a foreign transaction fee, and you can access a list of many that do not, here, on my site.

Some noteworthy flexible rewards cards with no foreign transaction fees include:  the Chase Sapphire Preferred card, American Express PlatinumBusiness Platinum cards and American Express Premier Rewards Gold card, Citi ThankYou Premier and Prestige Cards, Capital One Venture Rewards cards and the Barclaycard Arrival Cards.

If you are staying in a hotel, and you have the hotel’s loyalty credit card, use that card for your stay as long as it is one without fees.  Some hotel cards with no foreign transaction fees worth mentioning are:  the American Express Starwood Preferred Guest cards (which recently removed it’s foreign transaction fees), Chase Hyatt Visa, Chase Marriott Rewards Premier Cards, Chase Ritz Carlton Rewards Card, Chase IHG Rewards Club Select Credit Card and the Chase Fairmont Visa Signature Card.

Also note, if you can, try to bring both an American Express and a Visa/Mastercard so you are armed with both in case you encounter a merchant that only accepts one.

But, shouldn’t you use a card that offers bonus rewards too?

Having no foreign transaction fees trumps bonus rewards.  However, ideally, you should try to use a card that has no foreign transaction fees, AND one that allows you to earn your bonus points/miles at the same time.  Even though I mentioned the Amex Premier Rewards Gold Card above, keep in mind that you earn 2x Membership Rewards points only at US RESTAURANTS.  So, if you use this card to dine abroad, you will earn only 1 point per $1 spent.  In contrast, if you use your Chase Sapphire Preferred card dining abroad, you still earn 2x Chase Ultimate Rewards points per $1 spent.  (This would be the card that I would use dining abroad.)

On our recent trip to Whistler, CANADA, I proudly used my American Express Everyday Preferred card to pay for groceries A FEW TIMES.  For every purchase I made, I believed I was earning 3x American Express Membership Rewards points per $1 spent.  It was not until mid week that I realized that a) I was not shopping at a US Supermarket and b) in my never-ending quest for bonus points, I was using a card that charges foreign transaction fees.  Yes, I make mistakes too.  You can read about some of them here if you want.

What exchange rate will you get if you use a credit card for your purchases abroad?

When using a credit card abroad, the issuing bank will automatically convert your purchases from the local currency to U.S. dollars on your bill using an exchange rate.  How is this exchange rate determined?  (What follows is confusing, feel free to skip to the simpler explanation below :-) ).

Below is from Chase’s Terms and Conditions.  Chase uses the rate on the date the transaction is processed versus the date of the transaction.  Also note, this conversion rate calculation is applicable to any Visa or MasterCard, regardless of the issuing bank.

“If a transaction is in a foreign currency, Visa International or MasterCard International will convert the transaction into U.S. dollars using their own currency conversion procedures, and then will send us the transaction amount. The exchange rate will be determined using either the range of rates available in the wholesale currency markets for the processing date or a government-mandated rate in effect on that date. The exchange rate used by Visa or MasterCard may differ from the rate on the date of your transaction.”

 

Here are American Express’s Terms and Conditions which are similar.

“If you make a charge in a foreign currency, we will convert it into U.S. dollars on the date we or our agents process it. Unless a particular rate is required by law, we will choose a conversion rate that is acceptable to us for that date. The rate we use is no more than the highest official rate published by a government agency or the highest interbank rate we identify from customary banking sources on the conversion date or the prior business day. This rate may differ from rates that are in effect on the date of your charge. We will bill charges converted by establishments (such as airlines) at the rates they use.”

 

Sorry for all of that.  IN SIMPLER TERMS…when you swipe your card to pay for a purchase abroad, your card’s network (Visa, MasterCard or American Express) processes it using a rate that’s close to the current market rate and sends the amount of the charge to your credit card issuer.

Also, I don’t want to complicate things any further, but sometimes you will get a different exchange rate if you use a MasterCard versus a Visa versus an Amex.  Here is MasterCard’s currency conversion tool, and here is Visa’s.  However, no matter which card you use, the exchange rate that you receive will be better than the rate you would have gotten had you converted your US cash to the foreign currency either at home (before your trip) or while traveling.

What else should you do before you leave?

One thing that I always do before I travel, is I notify the credit card company beforehand to tell them where I will be and the duration of my stay.  This will eliminate any headaches that may arise if a charge is deemed suspicious and denied because of my unusual location.

Also, as much as I hate to admit this, it’s a good idea to convert a little bit of cash to the local currency before you travel.  But, don’t convert too much.  You don’t want to miss the opportunity of getting a better exchange rate, or more importantly, lose the potential to earn rewards when you use your card!

Some of you may have already known a few of these tips.  For those of you who did not, I hope this advice helps.  And for those of you who would have forgotten to alert your credit card company about your upcoming travel plans, You’re Welcome.

Safe and Cash-Free Travels!