Heading for abroad for a travel adventure? In addition to your sunscreen and travel guides, you may want to pack a credit card.
Paying with plastic while traveling abroad is quick and convenient, and you’ll land a nifty exchange rate on each transaction you make. When you pay by credit card, you receive the wholesale exchange rate reserved for big banks and corporations rather than the more expensive retail rate offered to consumers. You get this same excellent wholesale exchange rate when you pay by debit card or withdraw cash from an ATM.
Bring your American dollars or traveler’s checks to a currency exchange counter or overseas bank, and you may be stuck paying higher retail exchange fees, plus additional fees, which can certainly add up quickly, especially at currency exchange counters.
On your next overseas trip, we recommend reaching for those plastic cards whenever you pay, so you’ll be treating yourself to the best exchange rate available. (Want to keep tabs on how your charges are affecting your financial situation, particularly your credit? You can view two of your credit scores for free on Credit.com.)
What Are Foreign Transaction Fees?
As nice as it is to land a good exchange rate on your overseas credit card purchases, you’ll still need to watch out for foreign transaction fees (the fee your issuer charges for using your card abroad). When you make a purchase with a credit card in another country, you pay the merchant in local currency. For example, if you’re in Mexico, you pay in pesos. The charge that shows up on your credit card bill is in U.S. dollars.
Visa and MasterCard, for instance, charge a 1% fee on overseas card transactions, and most credit card issuers pass this fee onto their customers. Many card issuers also tack on additional fees of 1 or 2%, so you could pay as much as a 3% fee on every credit card purchase you make abroad.
Let’s say you take your credit card to Japan. When you hand your card to a waiter in a restaurant in Tokyo, you are paying for your meal in Japanese yen. Your credit card statement will list the cost of your dinner in U.S. dollars. Visa or MasterCard converts the cost of your meal from Japanese yen to U.S. dollars and charges your bank a 1% fee for the service.
This is why it’s important to choose the credit cards that you travel with carefully. Before your next trip, we advise calling each of your credit card companies to ask about foreign exchange fees, which will vary. While smaller banks and credit unions tend to charge lower fees, some larger issuers limit these fees to just 1%.
How to Use Your Credit or Debit Card Abroad
As you make your plans for traveling abroad, there are a few things you should keep in mind that can help you save while traveling, as well as avoid any complications that can come from using your credit or debit card abroad.
Pack the Right Card
Bring a credit card with the lowest currency conversion fee for your next overseas trip, plus a backup credit card. A backup credit card will come in handy if your other credit card is lost, stolen or accidentally frozen (more on that in a moment). You can see our picks for the best low-interest credit cards here.
Call Your Issuer
Before you leave for your trip, be sure to call your card issuers and tell them about your plans. Let them know the travel dates and cities you’ll be visiting and when you’ll be returning to the U.S. That way, they will know it’s you and not a thief making all those credit card purchases in Paris. If you don’t give your bank a heads up about your trip, they could put a freeze on your card, and you won’t be able to use it. Nobody wants that kind of hassle, especially on vacation.
Contact Your Bank
You’ll want to make a similar phone call to the bank that issues your debit card if you’re planning to use it abroad. Tell the bank your travel dates, ask for a number you can call overseas and ask about any potential fees. Some banks charge fees ranging from 1% to 3% on debit card transactions made outside the country. Others charge fees ranging from $2 to $5 per ATM withdrawal.
Limit ATM Withdrawals
On that note, because fees can make ATM withdrawals quite pricey, try to limit the number of withdrawals you make during the trip. Rather than withdrawing cash every day, make one or two larger withdrawals per week, if you don’t bring cash with you ahead of time (or you end up needing more). The websites of Visa, MasterCard and American Express list ATM locations in countries around the world, so you should be able to track down overseas ATMs before you’ve even left the country. And many major international airports have ATMs, so you may be able withdraw some local cash as soon as you arrive.
Test Your Cards
Be sure to test ATM cards before leaving the country, and make sure you have a four-digit personal identification number for your card. Many ATMs outside North America do not have letters on their keyboards, or the letters may appear in a different order.
Get the Right Numbers
Be sure to ask your credit card issuers for an international contact number. You won’t be able to call an 800 number once you’re outside the country, so you need to track down a customer service number with an area code you can call in case of emergencies.
Remember, if you extend your overseas holiday, be sure to call your bank and credit card issuers and let them know. That way they won’t be worried when additional charges start popping up in Rome or Madrid. They’ll know it’s you, savoring a travel adventure just a little while longer.
This article has been updated. It was originally published April 24, 2012.