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So, how should I pay for things while traveling abroad?

Leave the dollars behind…

Paying the dinner bill in Managua with Nicaraguan córdobas.

The quick & dirty

Without fail, one of the primary questions I get from friends and family when we strike up conversations about an upcoming trip has to do with how one should pay for things while traveling. Indeed, one of the obvious first orders of business is to address how you’re going to cover yourself financially while you’re out there romping around the planet.

Special circumstances aside, the answer is not to bring traveler’s checks or wads of your home currency with you, but rather just a bit of cash, along with your ATM and credit cards, just as you might carry on your person at home. Sign up with certain financial services companies in particular that offer no-fee or fee-rebate products, then use your credit or debit cards wherever they are accepted and utilize local currency withdrawn from an ATM when you must pay in cash.

Doing so will enable you to take advantage of the best going exchange rates with a minimum to a complete absence of fees. Put another way, you will get the best deal, often the same deal as the locals, if you stick to this plan.


The story

While globalization continues its march, plastic rules, and cryptocurrencies grab headlines, there are still many businesses all over the world that do not accept anything other than cold hard cash. If you’re coming from a country where credit and debit cards are the norm, or perhaps even smartphone payment apps like Venmo and LevelUp are commonly used, then you may have to rediscover cash and how to add it back to your quiver of payment methods.

However, that doesn’t mean you should bring a duffel bag stuffed with bills from your home country. Yes, you will want to bring a small amount of cash with you for those moments where you find yourself in a pinch, but more importantly you should carry an ATM card — linked to a checking account at a financial institution at home that does not charge, or that reimburses you for, foreign transaction and ATM fees — one you can utilize to withdraw local currency once you’re in your host country.

Moreover, you’ll want to add a couple of credit cards (or debit cards that can be used as credit cards) to the mix. You’ll have the best luck with Visa, then MasterCard. Forget about your AMEX card, which tends to have low acceptance rates abroad.

Cash

When it comes to cash, currency exchange houses tend to be about the worst way to get local currency. They’ll never give you the best exchange rate and you’ll be hit with fees. The best means of acquiring local currency these days is to simply use an ATM, just like you would do at home if you needed cash for something. You’ll get a much better exchange rate.

Unfortunately, this means that you may still get hit with fees, depending on whom you bank with at home. These fees may include ATM and foreign currency exchange, or conversion, fees.

Recouping ATM Fees: The bank that services the ATM that you use in your host country will charge you a fee for withdrawing money from your home account. It varies by bank but often it’s a flat fee, not a percentage of the total amount you withdraw. There are financial institutions in the US that reimburse you for the ATM fees you’ve had to pay for withdrawing cash anywhere else in the world.

My favorite (and really one of the only games in town) is the Schwab Bank High Yield Investor Checking Account. As they print on their site, Schwab provides unlimited ATM fee rebates on your cash withdrawals anywhere in the world, there are no monthly service fees on your account, there is no minimum balance required, your account balance earns interest, and it is FDIC insured up to $250K, among other things.

Note that you have to open a brokerage account with Schwab (if you don’t have one already) when you open the checking account, but you are under no obligation to use the brokerage account or carry a balance in that account. Although, as an aside, I’ve heard only good things about Schwab brokerage services.

Other notable mentions include First Republic for international ATM-fee rebates. Otherwise, frankly, the pickings are pretty slim. This year, Schwab continues to stand apart, topping NerdWallet’s 2018 list.

Avoiding Foreign Currency Exchange Fees: When you withdraw money, your bank at home is likely to charge you a foreign currency exchange, or conversion, fee. Credit unions tend to charge the lowest fees in this regard. Some financial institutions no longer charge these fees at all. Before you travel, inquire with your bank regarding these fees.

Once again, with Schwab, you will also not pay foreign currency conversion fees when you use your associated debit card to withdraw money from an ATM anywhere abroad.

Plastic

Avoiding Foreign Currency Transaction Fees: When you purchase something abroad using a credit or debit card, it is quite possible that you will be charged foreign currency transaction fees (they may also be listed as currency exchange or conversion fees) by your bank at home. The idea is the same as with the foreign currency exchange fees charged when withdrawing cash from an ATM. Credit unions tend to charge lower fees in this regard.

Some financial institutions no longer charge these fees when you use your debit or credit cards to make purchases. For instance, when you use the Schwab debit card linked to the previously mentioned checking account to make a purchase, you will not be charged these fees. It appears as though more and more credit unions are waiving these fees on the credit cards they offer their members.

As for the really large financial institutions like Chase or Barclays that offer credit cards to all, they may charge you foreign currency transaction fees and they can be quite hefty. The folks over at NerdWallet have a great rundown of the best credit cards available for avoiding foreign currency transaction fees.

Topping off the list this year are the following credit cards:

These are perfect for those of you who travel frequently or expats who are planning extended or more permanent stays but want to maintain ties with US financial institutions. Plus, you earn miles, points, or cash-back, of course, not to mention the sign-up offers.


The Exceptions

Now what of those “special circumstances” I mentioned earlier, you might be wondering. Well, these are usually political or economic in nature.

Cuba

For US travelers to Cuba, for example, there was no option to withdraw cash from ATMs while there. The country did not have agreements with American financial institutions that would allow for that.

Hence, you had to bring all the US dollars you needed for the duration of your stay and exchange them at currency houses for Cuban currency, known as CUCs (pronounced similarly to kooks), as you went. That meant formulating a budget beforehand and then sticking to it during your trip. It also signified that you had to be careful to safeguard that cash while traveling, which could be stressful.

The circumstances changed in 2016 when one bank based in the United States — yes, just one — entered into a relationship with the Central Bank of Cuba to fill a State Department need as relations between the two countries began to thaw considerably under the Obama administration. Stonegate Bank of Pompano Beach, Florida, offers a MasterCard debit card that qualifying account holders can now utilize in Cuba for withdrawals and point-of-sale transactions.

Of course, if you don’t qualify or don’t foresee a lasting personal relationship with Cuba, there’s probably not much reason to becoming Stonegate’s customer. Additionally, under Trump it’s anybody’s guess as to what to expect next.

Economic crisis in effect

Another special circumstance includes visiting a country that is experiencing an economic crisis. In that case, the local currency, whatever that may be, is likely to lose value — its purchasing power — meaning it’ll cost you more for less. If you have a stash of dollars, pounds, euros, or similar, you may stand a fighting chance of being able to rely on them instead of the local currency to purchase what you need at prices that don’t constitute highway robbery.

That being said, keep in mind that you’d be caught up in a crisis, so use your head and watch yourself. In other words, don’t become a mugging stat.

Preference for internationally strong and recognizable currencies

Finally, there are countries not in the midst of economic crises where businesses still seem to show a preference for foreign currencies, especially dollars. That is a potential indication that the local population lacks faith in their country’s monetary system, but I digress.

Costa Rica is one such place. Thus, while it is not necessary for you to pay in Costa Rican colones (and believe me, they will gladly take your dollars or charge your card for the converted price in dollars), you’re getting a worse deal than if you simply used your credit card to pay the bill in colones, or actual colones from an ATM to pay the bill. This is especially true if your home financial institution isn’t charging you, or will reimburse you for, those aforementioned fees.

That’s because the business, whether it be a restaurant or tour company or what have you, is relying upon its own subjective exchange rate of colones to dollars and that rate is almost always not going to be in your favor: it’s going to be in theirs. Therefore, stick to the plastic or local currency and pay the price in the local currency shown on the bill, that is unless you stay abreast of the exchange rates and somehow find yourself in a situation where the person you need to pay is actually out of touch with what those are in the moment.

In addition, be aware that the business in question may automatically run your credit card payment in dollars without first asking you what you want to do, which is not only irritating but somewhat dubious behavior, if you ask me. Stick to your guns and have them rerun the card or stress that you want to pay the bill in the local currency when you hand the card over to begin with.

No, we’re not typically talking about massive discrepancies in the final cost to you with each occurrence, but let’s face it, little bits here and there add up over the course of a trip.