Accessing money when travelling can be a minefield of fees. This page is intended to help you navigate that minefield and find the best combination of methods that works for you. There are lots of ways you can access money when you're travelling, and most travellers will use a combination of several methods during their trip. The main ones tend to be:
- Cash in the local currency
- Cash in your home currency
- Cash in so called "hard" currency (US dollars, Euros or GBP)
- Credit cards
- Debit cards
- Travel money debit cards
- EFTPOS cards
- Travellers cheques
We'll look at each of these in turn and consider their pros and cons.
But first a quick lesson on currency exchange...
An important concept to understand before we get into these, is that any time you change from one currency to another you lose money. There are two ways you lose money:
First there is any commission or fee that you get charged for the exchange. This may be a percentage of the transaction, or it may be a fixed amount per transaction, or it may be a mixture of both.
Secondly there is the difference between the buy and sell price for that currency. Banks, credit card companies and money changers all want to make a profit from changing your money, so if you want to buy a currency from them their price is higher than they'd sell it to you for. For example, on 28 April 2012 Visa's rates meant they will buy Australian dollars from you at a rate of 0.787 AUD = 1 NZD and sell them back to you at 0.783 AUD = 1 NZD. This means if you changed 100 NZD into AUD and then back again, even without fees you'd only end up with 99.50 NZD. Which is a loss of only 0.5% for two conversions, or 0.25% per conversion.
To find out Visa's recent rates check out: http://corporate.visa.com/pd/consumer_services/consumer_ex_rates.jsp?src=ex_rez
To find out Mastercard's recent rates check out: www.mastercard.com/global/currencyconversion/index.html
Visa and Mastercard have extremely close buy/sell splits so you don't lose much on them. But banks and money changers usually have much bigger differences between their buy and sell prices. This means that even if they might say they charge "no commission" they could still be ripping you off because their buy price is so much higher than their sell price.
When you combine these two fees you'll typically find that you can get the best rates of exchange using a low fee credit or debit card, followed by some small business money changers (sometimes these may rip people off though), followed by official foreign exchange places in city centres, followed lastly by foreign exchange places at airports after you've cleared security. Unofficial money changers sometimes offer good rates, and sometimes offer bad rates. Sometimes they are legal, sometimes they are illegal. So be careful.
One other major thing regarding cards: You need to make sure your bank knows you’re going to be travelling and they know not to block your credit card when they see purchases being made on it in Ethiopia. Sooooo many travellers have sad stories to tell about their banks freezing their cards, sometimes even when they have told the bank in advance that they were going travelling! Which is why you really do need to have a backup alternative for if your main credit card stops working. Some might call me paranoid, but when we travelled for 11 months in 2009 we had two different Visas and one Mastercard, although this was partly because I was concerned about banks failing financially…
Okay, now we can get into the options.
Cash in the local currency
This is the most useful stuff to have when you’re in a far away land. This is what the locals use to buy things, so you can normally use it to pay for just about everything. And it is immediately useful to the locals so you’re likely to get the best price for things if you pay for them in the local currency rather than some foreign currency that they have to go and exchange.
- Paying in local currency usually gets the best price.
- Local currency cash is accepted everywhere (almost!).
- You don’t get charged any extra fees to pay cash.
- Easier to keep track of how much you’re spending.
- Using local currency makes it slightly less obvious you’re a tourist which may make people less likely to try to rip you off. But if you’re wearing cargo pants and a backpack and have an SLR camera hanging around your neck then you’re not going to fool anyone anyway…
- Vulnerable to theft.
- Have to use it all before you leave the country, or else pay fees to exchange it into another currency.
- Can be confusing until you get used to the different notes and coins, which can lead you to accidentally pay too much for something or it can make you look like a good target for scamming.
- Some touristy things in developing countries may only accept payment in “hard” currency such as US Dollars or Euros or British Pounds.
- Very occasionally you may find other circumstances where you can’t use local currency such as paying for tourist visas in Syria (US Dollars or Jordanian Dinars only!) or paying for anything in economically stuffed countries like Zimbabwe where they’ve given up on their own currency.
Cash in your home currency
If you’re from the US, Europe or UK then this doesn’t apply to you because your cash is “hard” currency, so see the next section.
If your home country currency isn’t a main hard currency then it’s likely to be a pain to exchange in far away places. Sometimes you simply won’t be able to exchange it, whereas other times you’ll have to exchange it at very bad rates. In general carrying cash in your home currency isn’t likely to be a very cost effective way to carry money, unless you’re in a country quite nearby your own.
Even if you are in a nearby country where you can pay for lots of things in your home currency, you’re likely to get much better prices if you pay in local currency instead. A good example of this is using Australian Dollars to buy stuff in Port Vila, Vanuatu. Yes you can use your home currency, but you’d pay a lot less if you used the local currency.
- Easy for you to get at home.
- Can exchange it as needed so don’t have too much local currency left over when you leave a country.
- Unlikely to be accepted other than at money changers.
- If it is accepted it probably won’t be at very good exchange rates.
- Vulnerable to theft.
Cash in "hard" currency (US dollars, Euros or GBP)
“Hard” currency is supposed to refer to currencies that are considered to be safe currencies backed by robust economies. With the way things are going these days, we’ll just take “hard” currencies to mean any of the main western currencies that are widely accepted globally. This varies from region to region, but usually includes US Dollars and Euros and British Pounds.
Lots of middle class older tourists seem to carry truckloads of hard currency on them and try to pay for everything with it. If they’re on a particularly touristy tour this may work and they may never even need to touch the local currency. However, if you’re after a good value trip then this is not the best way to go. Hard currencies have their place in a traveller’s luggage, but you probably shouldn’t be relying on using it for everything.
Sometimes you need hard currency to pay for touristy things and if you don't have any then you'll have to withdraw cash in local currency from an ATM and then go and exchange it for hard currency somewhere. This will cost you twice in conversion fees so its a lot better if you already have some stashed in your pack somewhere for just such an occasion.
- You can often use hard currency to pay for touristy things.
- Easy to exchange almost anywhere for the local currency, although you may not get rates as good as you'd get from Visa or Mastercard.
- Works well as a safety back up for if you find yourself out of local money and with no ATM around.
- If you use it to buy everyday items you will probably pay a lot more than using local currency.
- Vulnerable to theft.
- Some countries can be overly cautious about forged US Dollars so banks may reject your cash if it is too old or has certain serial numbers.
- If you’re not from Europe or the UK or the USA then you’ll have to pay commissions and fees to exchange your home currency into hard currency, and then pay again if you convert the hard currency into local currency.
Credit cards have become the number one method used by travellers to access cash. They have also become the number one method used by banks to fleece travellers for vast sums of money in fees. The trick is to choose the right credit card, then use it in the right way.
If you’re going to be relying on credit cards to access your cash when you’re overseas then make sure your card is going to be accepted. This means get a Visa or a Mastercard. Visa is the most accepted card worldwide followed by Mastercard (unless you believe Mastercard's claims that it is the other way around). Some places will also accept American Express, but many won't. The best solution is to have one of each, with one being your main card, and the other being a backup. This is in case either your main card gets lost/stolen/frozen by your bank, or you find somewhere that accepts one but not the other.
But there’s more to it than just choosing the right franchise. You also have to think about the fees…
There are two ways to use a credit card: To directly pay for stuff, or to withdraw cash from an ATM. Withdrawing cash from an ATM is something most people wouldn’t probably do at home, but it is the best feature of a credit card when you’re overseas. There are however five costs to be aware of:
- The cash advance fee. This fee is charged by your bank and is usually a fixed dollar amount between zero and $10 per withdrawl.
- The dreaded cash advance interest. This is why people don’t do this at home. As soon as you withdraw cash on a credit card that does not have a positive balance you will start being charged interest on that debt at a terrifyingly high rate. With most New Zealand cards you can avoid this if you load money onto your credit card in advance so your card stays in a positive balance when you make the withdrawl. In some countries it is hard to find a card that will let you do this and not charge you cash advance interest. So definitely check the fine print of your credit card to see whether or not this trick will work for you.
- The local ATM withdrawl fee. Many ATMs charge a fee to let you withdraw money from your credit card. This might be a couple of dollars or it could be more. Usually you should be able to find an ATM that either doesn’t charge anything or only charges a small fee.
- The currency conversion fee (sometimes called an overseas service fee). The currency conversion fee is usually 1 to 2.5% of the transaction value. This can add up on big purchases so you want this fee to be as low as possible. Sometimes you won’t notice this fee on your statement because they’ll factor it directly into your exchange rate conversion. This may be made up of charges from your bank and charges from your credit card company.
- The buy/sell split provided by your credit card company. If you're with Visa or Mastercard this is very low, maybe about 0.25% so you don't need to worry about it.
Paying for stuff with a credit card overseas is pretty similar to paying for stuff at home. The only extra fee you’re likely to get is the currency conversion fee.
Make sure you know what these fees are before you decide to use your credit card for overseas transactions. If you shop around you should be able to find a card that charges you no cash advance fee and no cash advance interest when you have your card in a positive balance. If you choose your ATM carefully you should be able avoid the local ATM withdrawl fee, which leaves only the currency conversion fee. Which makes that fee very important.
Besides all that you also need to consider what the annual or six monthly or monthly card account fee is for the card. Just in case you thought there weren’t enough fees to add up.
Four of the best New Zealand credit cards for travel are summarised in the below table, alongside a GlobalPlus Visa that you might have thought would be quite good for travel, but is actually pretty rubbish due to all its fees.
If we were planning a big trip now we'd probably include a GE Money Gem Visa as part of our travel money plan.
- Credit cards are a lot safer than carrying oodles of cash around all the time.
- If you get a Visa (or Mastercard) you should be able to use it to withdraw local cash at ATMs almost everywhere you go (everywhere that has ATMs at least!)
- If you get the right card then you can withdraw local currency at better exchange rates than you could get at the banks or at local money changers.
- You can use it to directly pay for big purchases.
- Credit cards are a minefield of fees, although if you do your homework you should be able to find one that works out just about as good as any other type of card.
- You have to be disciplined and careful to maintain a positive balance and use your card right or even if you have chosen a good card you could still get slammed with big fees.
- Credit cards details are easily stolen which can mean your account gets frozen with or without good cause.
- If the value of your home country currency falls while you’re travelling you might not have enough money at the new exchange rates to do everything you wanted to do. Of course the opposite could also happen which would make things better for you. This adds more uncertainty to budgeting, especially if your home country has a particularly volatile currency.
- Some places don’t accept credit cards so you still need to carry local cash.
Debit cards are pretty similar to credit cards, but without the pitfalls around cash advance interest. We won’t go into them a whole lot as they’re really just a credit card that you have to keep in a positive balance.
It’s pretty hard to find a debit card that won’t charge you an ATM withdrawl fee so in theory you’re usually going to be better off with the best credit card you can find. But if you’re not sure you’re disciplined enough to keep a credit card in a positive balance then a debit card may be for you.
- All the pros listed above for a credit card.
- No risk of incurring horrendous cash advance interest charges.
- You can’t spend more money than you have.
- Similar fees to credit cards but without the possibility of incurring cash advance interest.
- Usually unavoidable ATM withdrawl fees will normally make a credit card better value in theory.
- Debit card details are just as easily stolen as credit cards.
- Subject to exchange rate fluctuations just like credit cards.
Travel money debit cards
Travel money debit cards are a special type of debit card (usually a Visa or Mastercard) that let you load money onto the card in another currency to your own. Effectively what you’re doing is locking in the exchange rate at the time you load the money onto the card, so you don’t have to worry about exchange rate fluctuations while you’re travelling.
This can be very handy if you’re going to be travelling in countries that use the specific currency of the card. However they can be a real pain in the wallet if you use it in some other country that does not use that currency, as you’ll then pay an additional conversion fee to withdraw cash from it in the local currency.
These cards often look like a pretty good deal at first glance, but you usually have to wade through all their many different fees to work out if it’s really going to be worthwhile or not. Typical fees for foreign currency cards include:
- The initial card fee. This is the basic one-off fee you pay to get the card and will usually be a few dollars.
- The reload fee. This is a fixed fee they charge you for every time you load money onto your card. This may be another few dollars, and should encourage you to put lots on at a time.
- The foreign currency conversion fee. This will usually be a percentage of the value you load on the card. This is equivalent to the currency conversion fee you pay when you buy things or make withdrawls using credit cards or normal debit cards. You’re changing the money as you load it so that is when you are charged the conversion fee. This will typically be 1 to 2% but may have a minimum charge.
- The buy/sell split of the travel money card provider. This is sneaky. Because you're converting the currency as you load it on, chances are you won't be getting the great rates that you'd get from Visa and Mastercard. Instead you'll be paying whatever sell price the card provider currently have. Try to find out how this compares to Visa or Mastercard's rates so you can get a feel for how much you're actually paying all up for the conversion.
- The cash withdrawl fee. Just like most credit and debit cards, you have to pay a few dollars (or pounds or euros) every time you withdraw cash from an ATM.
- The local ATM withdrawl fee. Same as for credit cards, the local ATM may want to charge you for the privilege of using their machine. Usually you should be able to find an ATM that doesn’t charge much if anything.
- The currency conversion fee. This only applies if you’re foolishly using your card for a withdrawl that is in a different currency. This is typically a couple of percent because they’re not really trying to be competitive on this! Plus if you're really lucky then your card provider may convert it back into your home currency before converting it into the local currency, in which case you'll lose even more!
- Then once you get home, if you forget about your card you may get pinged for an inactivity fee. You’re likely to have something similar on a credit card or debit card, but you’re more likely to use those when you’re at home.
You can also often purchase a travel money debit card in your own local currency. This makes it essentially the same as any other debit card. Some card providers let you load multiple currencies onto a single card. That's a pretty neat trick that can save you some initial card fees.
If you haven't come across travel money cards before and you're curious, check out some of these (apart from Travellex, the rest are all New Zealand cards):
Travellex cash passport: www.cashpassport.com
National Bank's travel card: www.mytravelcard.co.nz
KiwiBank's multi-currency Loaded for Travel card: www.kiwibank.co.nz/personal-banking/international-services/loaded-for-travel/
Air New Zealand's new OneSmart multi-currency card looks to be the best available at the moment, and it is pretty impressive. If you're a Kiwi planning a world trip then you should definitely consider this card. www.airnewzealand.co.nz/onesmart
To see how these four cards compare, we've done a bit of a summary below, similar to what we did for credit cards, but a bit more complicated due to some of the extra features of these cards.
There are two major things to notice from this table:
Firstly the Air NZ OneSmart card is the best by a country mile any which way you use it.
Secondly, check out the conversion fees charged by Travelex for withdrawing foreign currencies from a NZ currency card: 5.95%! And despite this, some travel agents still recommend this card to people. Madness!
So, in short, here are the pros and cons of travel debit cards:
- All the pros listed above for a debit card.
- If your local currency is at historically high values then you can use one of these to lock in a good exchange rate before you leave.
- In some cases you need a separate card for each currency you intend to use.
- If you foolishly withdraw a different currency from a foreign currency card (eg withdrawing GBP from a USD card) then you usually end up losing truckloads on exchange rate conversion fees.
- You can only get them in a small number of currencies.
- They have their own minefield of fees to navigate making most of them (except Air NZ OneSmart) usually not as great value as they first appear.
- If you load too more money onto a foreign currency card than you end up using then you have to get it back somehow and this will probably cost again in conversion fees and possibly withdrawl or other fees.
- Debit card details are just as easily stolen as credit cards.
So what about the humble EFTPOS card? Is that of any use travelling? Well, that depends on what type of EFTPOS card it is. If it has the Cirrus and/or Maestro logos on it then you might be able to use it in some overseas ATMs to access your home bank account. But this tends to be rather hit-and-miss, and you're likely to be stung for some decent fees.
When we went from New Zealand to Australia for a holiday a few years ago four of us had ANZ Bank EFTPOS cards with the Cirrus or Maestro logos on them. ANZ operate in Australia and New Zealand so we thought we'd be able to use our cards at the Australian ANZ ATMs. As it turned out, some of us could at some machines, while others couldn't. It was most odd. In saying that however, one of our friends used their ANZ EFTPOS card all over the Middle East with no problems. But we're pretty sure they punished her for it in currency conversion fees...
So my advice would be to talk to your bank a length before relying in any way on being able to use an EFTPOS card overseas.
- Convenient if you already have one.
- Can be rather hit and miss as to whether or not you can use them as they're usually not really designed with travel in mind. Best to discuss carefully with your bank.
- May incurr significant fees for overseas use.
Finally we reach what used to be the main device used by travellers to access cash, the travellers' cheque. Yes, these do still exist. And yes, they can be worth considering as part of your travel money strategy, but only as a safety backup for if you're out of cash and there are no ATMs or all your cards are frozen.
Travellers' cheques are essentially a type of bank cheque that you can buy from banks that you can exchange for cash all over the world, although fewer and fewer people are accepting them as they become more and more rare. They're more secure than cash as you have to sign them when you use them, and if you lose them you can cancel them and get a refund. They come in several major currency options, although normally you would get them in either US Dollars or Euros.
The reason they're not used much these days is that they're quite expensive. You have to pay a currency conversion when you first buy them, unless you're getting it in your home currency, and then you'll usually pay a hefty fee to use them and probably another currency conversion fee because you're only likely to need them if you're in some third world country where you can't find an ATM.
Despite their expense, it can be quite reassuring to have a couple hundred dollars or euros worth of travellers' cheques, just for a back up.
- Quite good security as you have to sign them to use them and you can cancel them if they get lost.
- Expensive to use.
- Not as widely accepted as they used to be.
What do you reckon? What has worked for you? Do you know of any options better than those listed above? If so we'd love for you to share them with us. If you have any comments or questions we'd love to see them below too...