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Traveling Overseas? Here's What to Pack in Your Wallet

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You've put the time in to plan your perfect summer getaway. All the arrangements have been made -- an economic hotel, well-timed pit stops, and cultural oddities to keep the kids amused. But have you thought about the best way to pay the tab for meals, museum tickets, rental cars, and kitschy mementos?

You might be surprised by how much how you pay can push up the total price tag.

Paper or plastic?
There are many ways to pay when you're on the road. The key factors to consider are cost, convenience, and safety:

  • Cash is cheap (you won't get charged extra to use it), but it's not necessarily safe to carry a wad of it around when cavorting in unfamiliar locales.
  • Debit cards are relatively safe to use (as long as you keep your PIN private), but if you can't find one of your bank's ATMs, you'll have to pay for the privilege of using another bank's cash machine.
  • Traveler's checks are another option if you can stomach the fees to buy them.
  • Lastly is most people's preferred method of travel payment: good ol' plastic (of the credit card variety). Credit cards are a traveler's best friend, offering both convenience (accepted almost everywhere) and safety (if stolen, your liability for fraudulent charges is minimal). And so long as you pay off the balance when you return home, they're cheap to use -- most of the time, that is.

The cost of using your credit card overseas
If you plan to pack a couple of credit cards and head overseas, brace yourself for an unpleasant travel memento: Extra charges on your credit card bill.

Every purchase you make from a foreign merchant (including online sellers that use an overseas payment network) is subject to two extra fees: Foreign transaction and currency conversion fees.

What exactly does the extra 1% to 3% you shell out get you? Two things: Someone to do the math so that all the figures on your credit card bill are the same denomination, and a senseless fee that, as far as I can tell, is there just because. More specifically:

1. The cost of converting drachmas into dollars: When you buy something with a price tag in drachmas, Visa, MasterCard, American Express (NYSE: AXP  ) , and Discover (the most popular payment systems) convert the transaction from the foreign currency into good ol' American dollars. The fee for that back-of-the envelope calculation (based on the U.S. dollar value of the purchase) is either passed directly to you (if you use Discover or American Express, which charge 2% and 2.7%, respectively) or to the card issuer (in the case of Visa and MasterCard, which charge around 1%).

Of course, the card issuer doesn't necessarily have to eat that fee, because they know you will! (With no middleman, Discover and American Express pass it right along to you.) So the cost of doing the currency conversion is passed right along to you with a little something extra ...

2. Another charge, well, just because: The "foreign transaction fee" is an extra charge issuers are allowed to tack onto your tab when you shop overseas. As far as I can tell, the only reason it exists is that legislators felt bad taking so many toys away from the card companies when they passed the Card Act. So they let the whole "foreign transaction fee" thing slide.

When in Rome ... use Capital One
There's a wide range of what lenders charge for foreign purchases. For example, the 2.7% currency conversion fee American Express charges might sound steep. But the company does not tack on a foreign transaction fee. Bank of America's (NYSE: BAC  ) currency conversion fee is just 1%, but the foreign transaction fee of 2% means you're shelling out 3% extra for that latte in Milan. And Capital One (NYSE: COF  ) cardholders get off scot-free, fee-wise: The company absorbs the currency conversion fee and doesn't charge extra for foreign shopping sprees.

Here's how some of the most widely used card companies stack up:

Issuer

Foreign Transaction Fee

Currency Conversion Fee

Total Fee

Capital One

0%

0%

0%

Discover

0%

2%

2%

American Express

0%

2.7%

2.7%

Bank of America

2%

1%

3%

Chase

2%

1%

3%

Citibank

2%

1%

3%

US Bancorp

2%

1%

3%

Wells Fargo

2%

1%

3%

Source: Indexcreditcards.com and Creditcards.com. Figures reflect rates as of the dates indicated on source websites.

4 ways to swat foreign travel fees
Before you hit the road plan your payment strategy. Here are four tips to keep transaction costs to a minimum:

1. Have a few payment options at your disposal at all times. If you find a bank that offers a great exchange rate and low fees on traveler's checks, consider using them to pay for big purchases (such as your hotel bill). On smaller day-to-day purchases, withdraw a few days' worth of funds at once to cover costs and put the extra money in your hotel safe.

2. If a retailer offers to ring up your purchase in U.S. dollars, politely decline and stick with the local currency. Your credit-card company will offer a much better exchange rate than what you'll get at the store. Plus, even if you do agree to an on-site currency conversion, there's a good chance your credit-card company will still charge you the fee.

3. Alert your bank and credit-card company before you travel -- domestically or overseas. Banks and credit-card companies are on high alert for fraud, and sometimes they have a hair-trigger reaction to unusual account activity.

4. And just to be safe, if you're separated from your bags or lose your purse or wallet, keep copies of everything in your wallet -- insurance cards, driver's license, credit/bank cards, passport, and contact information -- on you and in your luggage so you don't have to bus tables to pay for your crepes.

Dayana Yochim test-drives travel mishaps so that you don't have to. She doesn't own shares of the companies mentioned in this article. But she has lost her wallet before boarding a plane to Italy, had her ATM access cut off at Charles DeGaulle Airport, and talked her way out of several cancellation fees. American Express and Discover Financial Services are Motley Fool Inside Value picks. Try any of our Foolish newsletters today, free for 30 days. The Motley Fool has a disclosure policy.


Read/Post Comments (2) | Recommend This Article (8)

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Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On July 06, 2010, at 5:30 PM, GreeneWK wrote:

    In the orient (Viet Nam, China, and others), they will tack on a 3% charge locally when you use a credit card, their way of having you pay the merchant credit card fees.

    Of course, this is 3% more that is then subject to your local bank's fees back home.

  • Report this Comment On February 07, 2014, at 6:32 PM, alawrence37 wrote:

    Do you normally do the money exchange before you go overseas or once you get there? I've heard people tell me both things and I'm really not sure where to even get it done! Do most banks have foreign currency, too? http://www.edealinfo.com/creditcards/

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