Paying While Traveling: Which Is the Smartest Option?

It might seem intimidating to consider how to access your money while traveling abroad. But knowing a few basics will keep your mind at ease and allow you to enjoy your vacation. Here's how to access your funds while you're traveling, while also avoiding needless fees.

Credit Card

Best For: Flight purchases, hotel bookings, and restaurant bills.

Your credit card is your best friend while traveling. You can usually use your best travel rewards card for all of your major purchases before, during, and after your trip. You can book your flights and hotels, pay for restaurants and souvenirs, and in some countries, you can even pay for taxis and tours on plastic.

It's also worth noting that many credit cards charge a 3% fee for purchases made abroad. Though there are some great cards with travel rewards that do not have foreign transaction fees.

Credit cards are great in most countries. But what if you're traveling somewhere that your credit card won't work? Or what if you want to take out cash in local currency from the ATM? Credit cards will charge you a hefty fee for overseas ATM withdrawals.

This is why you can't fully rely on your credit card while on the road.

U.S. Dollars

Best for: Exchanging for local currency, and direct purchases (in some countries).

That's right. Americans are lucky to have the most traded currency in the world. When you're traveling, you should always keep some USD in your wallet, just in case all else fails.

With USD, you can easily head into a currency exchange booth in pretty much any country and exchange it for the local currency. I never travel without at least $500 USD packed away in my luggage.

Note: It's not wise to walk around with large amounts of cash in your wallet all the time. Stash your cash in different parts of your suitcase, carry-on, backpack, and in your wallet. Alternatively, leave some in your hotel safe.

Debit Card

Best for: Withdrawing local currency from ATM machines.

In most countries, you can simply head to an ATM and withdraw local currency using your debit card. This is your best option for taking out cash overseas if you have the right bank account.

Typically, a normal U.S. checking account will charge you upwards of $7 to make withdrawals from ATMs overseas. On top of this, the bank that owns the foreign ATM may also charge you fees.

To avoid as many charges as possible, call your bank and ask them to set you up with an account that doesn't charge for foreign ATM withdrawals. These accounts usually have a monthly fee, but if you keep enough money in the account at all times, they'll often waive the fee.

In the U.S., the best bank for this is Charles Schwab, which waives foreign ATM fees and even reimburses you for all of your ATM fees at the end of the month.

In Canada, the TD Canada Trust All-Inclusive banking plan doesn't charge foreign ATM fees. This account normally costs $29.95 per month, but they waive the monthly fee if you keep $5,000 or more in the account at all times.

U.K. citizens can use the Norwich and Peterborough Gold Current account. Keep £5,000 in the account at all times and there's no monthly fee, and you get free foreign ATM withdrawals.

Another option to avoid foreign withdrawal fees is to choose a bank that is in the Global ATM Network. The network includes many major worldwide banks including: Bank of America (U.S.), Barclays (U.K., Portugal, and parts of Africa), China Construction Bank (China), Scotiabank (Canada, Peru, Chile, Mexico, and the Caribbean), and more.

If you withdraw money from an ATM in the Global Network, you won't be charged a fee. If you have a debit card in this network and use it in another bank's ATM, you'll be charged a hefty $5 fee.

The final option for saving yourself charges when using your debit card abroad is to get an HSBC account. As long as you withdraw from an HSBC ATM machine, you won't be charged any fees — and only $2.50 fee at any other ATM. There are thousands of HSBC ATMs in over 70 countries and territories worldwide.

The final two options will limit you to Global Network or HSBC ATMs, so I highly recommend the Charles Schwab for U.S. citizens, Norwich and Peterborough for U.K. citizens, or TD account for Canadian citizens.

Local Currency

Best for: Getting out of a pinch, and any small purchases where a credit card or USD are not accepted.

There will be many places where you'll have no choice but to spend local currency, so it's important to always carry some in your wallet. Of course, you can use your credit card, debit card, or USD to obtain local currency while you're traveling, but you can also pick it up from your home bank before you travel.

Your bank may not have all currencies, but in most cases, you should be able to pick up a couple hundred dollars worth of your destination's currency before you depart on your trip.

If you're traveling to a little-visited destination, you may want to call your bank a few weeks before you depart, and ask them if they can order you the currency that you need. It's a good idea to arrive in a new country with some local currency in your wallet, so that you can at least pay for your taxi from the airport to your hotel.

If you can't get it from your bank before you leave your home country, don't worry, there are usually ATMs at the airports.

No matter how you get it, you should always carry some local currency on you while traveling. In a crunch, it's the only thing you'll be able to use.

Prepaid Travel Cards

Best for: Cash withdrawals and purchases where you would normally use your credit card. Beware, there are fees with many Prepaid Travel Cards.

These are cards that are usually accepted anywhere a debit or credit card would be. As the name suggests, you load the card up with credit and then spend it while you're traveling.

There are quite a few fees associated with using these cards — like a $2.50 monthly fee — but they are actually a very reliable and secure way to spend money overseas. They also help you to budget your trip because you can load up exactly what you plan to spend on your holiday before you leave home.

There are quite a few great prepaid debit cards to choose from, but make sure that the card will suit your needs. Always watch out for hidden fees!

Travelers Checks

Best for: Your last resort.

A dying breed of international currency and one that you'd only likely find in your grandparents' wallet. Your last form of financial back-up while traveling could be a travelers check. These things have been in a steep decline since the late '90s, and are becoming harder and harder to cash, but for now, they can still offer a good backup of funds.

Plan for Every Scenario

There are many different ways to carry and spend money while traveling and you should always utilize as many options as possible.

You never know when your ATM card will stop working, your credit card is declined, or you find yourself in a place with no foreign exchange booths.

To avoid the catastrophe of being stranded with no money in a foreign country, you should always carry at least a debit card, a credit card, American dollars and some local currency.

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Stephen Jones

A good bank account/debit card, for Australian residents, is the Citibank Plus account - no currency exchange fees, no foreign ATM fees (apart from those levied by the bank you're withdrawing from) - and no monthly account keeping fee.