What to use overseas: cash, travelers’ checks or credit cards?

by Mary Beltran, Assistant Editor, ITN

Paying for purchases overseas has gotten complicated.

If you exchange your U.S. cash for currency overseas, you may lose some value depending on the exchange rate, and you may also pay a fee for the transaction.

If you take travelers’ checks, you may be able to use them at hotels and sometimes in shops, but small shops or restaurants often don’t accept them. That means you’ll need to cash the checks into the local currency, paying the transaction fee as mentioned above.

If you use your ATM (automatic teller machine) card overseas to draw money from your checking account to get cash, then above and beyond the transaction fee you pay to the foreign bank, many U.S. banks will slap an additional flat fee and sometimes even a percentage surcharge on the amount withdrawn.

If you pay for goods or services by credit card, you may get socked for more money due to an unfavorable change in the exchange rate (sometimes figured days or weeks later on your billing statement) PLUS there is an added transaction fee (surcharge) based on a percentage of the total transaction. These surcharge fees have gotten really tricky. Many cards are now charging a 3% surcharge on purchases made in foreign countries; some charge even more. A very few charge less (Capital One, USAA and some small banks and credit unions still offer card accounts with lower fees and/or surcharges).

There is another type of card being advertised for travelers: the stored-value card. Currently issued by American Express, Visa and some banks, these cards store credit prepaid up to a certain value. (Some allow “reloading” of additional funds.) They work like credit cards but have the added security that if lost or stolen, you can lose only the prepaid amount.

However, even with stored-value cards, fees still come into play. You pay an upfront fee to purchase the cards, and after you load money into the card (usually the amount is at least $300, but up to $2,700 can be loaded) you pay fees whenever you use the card. The transaction fee and the 3% surcharge still apply plus, as usual, any conversion rate difference.

The American Express Travelers Cheque Card is usable at any location that accepts their regular credit cards. However, the Visa TravelMoney card is good only at locations that accept Visa debit cards. (Debit cards — which draw money directly from your checking or savings account and require you to enter a PIN — can be useful to get cash and pay for some purchases. However, some merchants accept debit cards but charge a fee for their use, and some stores overseas only accept debit cards issued by Visa or MasterCard, not by a credit union or bank.) Also, with the Visa TravelMoney card, the foreign-exchange transaction surcharge is a high 7%.

Another thing — about those mysterious currency-exchange conversion rates on transactions with ANY card, it is difficult to pin down exactly what the rate will be. The fine print on the “Terms & Conditions” written by various credit card companies can be quite vague.

For instance, American Express, in describing the Travelers Cheque Card on its website (https://www68.americanexpress.com/bol/common/Terms&Conditions1.html), states, “…the Initial Load Amount and any Reloads will be converted from US Dollars to the currency of the Travelers Cheque Card using a conversion rate that is acceptable to us… Currently, the conversion rate we use for initial Loads and Reloads is not greater than the highest official rate published by a government agency, or highest interbank conversion rate identified by us from customary banking sources on the conversion date or prior business day, increased by three percent (3%).”

Whew! I’m glad that’s cleared up! So basically they’re saying they can charge you the highest rate they can find out there and then slap on an additional 3%.

As they say at carnivals, “You pays your money and you takes your chances.”