travelers checks

Paying While Traveling: Which Is the Smartest Option?

Nick Wharton — Thu, 17 Mar 2016 10:00:09 +0000

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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This article is from Nick Wharton of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

Why This Thing in Your Wallet Is Almost Useless Today

Damian Davila — Wed, 15 Apr 2015 17:00:32 +0000

Fewer and fewer people are using travelers checks today, but at one time they were considered a popular form of payment when traveling abroad: There was about $9 billion in travelers checks outstanding back in 1996. Fast forward to February 2015, and that value has dramatically dropped to just $2.9 billion! This explains why one major worldwide currency exchange company, Travelex, stopped issuing travelers checks in 2008.

Here are five good reasons why fewer people are using travelers checks today — and why you probably shouldn't use them anymore, either.

1. Limited Acceptance of Checks Across the World

If their declining popularity isn't enough of a deterrent, here's another: Several countries are planning to stop accepting checks as forms of payment in the near future. For example, the U.K. set October 31, 2018 as a target date to encourage other forms of payment. Virtually all major British supermarket chains in the U.K. don't accept any form of check (or "cheque" in British English), including travelers checks.

Other countries, such as Denmark, Finland, Iceland, Norway, and Sweden, did away with checks about 30 years ago. The more countries that stop using checks, the more cumbersome it becomes for banks to process travelers checks.

2. Fewer Redemption Locations

A review of online travel forum discussions about redeeming travelers checks abroad is very discouraging. From Puerto Rico to Vietnam, many travel destinations share common pain points about processing travelers checks:

Travelers checks can only be redeemed at banks or exchange houses. Both of these have limited hours of operation.
Exchange rates at locations accepting travelers checks are far worse than those at other financial institutions.

3. Difficult Redemption Process

If finding a redemption location isn't hard enough, it's also difficult to cash those travelers checks. Some actual users of travelers checks complain that they:

Were not able to cash travelers checks at locations that sell those same checks
Had to still pay for exchange fees and commissions, even after having paid for those charges upfront
Were asked for their social security number when redeeming the checks
Must hold an account at the bank cashing the travelers checks
Had their travelers checks "bounce."

Keep in mind that on top of valid photo identification (very often your passport), you also have to present your original purchase receipt when redeeming travelers checks. This means that you have to carry your passport more often than necessary, increasing the chances of losing that valuable document.

Also, if you lose you original purchase receipt, you may be completely out of luck and may not be able to cash in your checks abroad at all.

4. Expensive Redemption Fees

On top of getting less money (from a less favorable exchange rate) in local currency, you could also get hit with additional charges. These charges can range from 0.75% to 2.5% with minimum transaction fees as well.

Some countries may also impose redemption limits. For example, redemption locations in Mexico enforce a maximum daily limit of $300-$500 and a maximum monthly limit of $4,999. This means that additional processing fees, such as commission charges, will hit your pocket again and again with each additional redemption.

5. Cheaper Alternatives

There was a time in which all credit cards would hit you with a flat fee per foreign transaction, a percentage fee for total purchase amount, and a foreign currency fee. Nowadays there are plenty of debit and credit cards that charge no fees when used abroad. (See also: 10 Signs You Ought to Get Another Credit Card)

Contact your financial institution to check if it offers a credit card without foreign transaction fees. Also take a look at our list of best travel reward credit cards with no foreign transaction fees. Remember that some financial institutions may require you to notify them in advance if you plan to use your card abroad.

Another cheaper alternative to travelers checks are ATM cards. Certain banks with very large international networks, such as Citibank, charge no fees for withdrawals at participating locations. Other banks, such as Ally, may charge you a fee of up to 1% for using an ATM in a foreign country. Depending on your destination, this charge may be much lower than the one for using travelers checks.

Contact your financial institution to find out all applicable charges and learn how to minimize ATM fees when traveling abroad.

What is your craziest story about using travelers checks abroad? Please share in the comments.

This article is from Damian Davila of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

Savings Bonds as Interest-Earning Travelers Checks

Philip Brewer — Sun, 08 Nov 2009 14:00:01 +0000

Remember travelers checks? In the days before ubiquitous automated teller machines, they were a useful product. You could use them almost like cash — but you could carry more than you'd feel safe carrying in cash because if they were lost or stolen you could get them replaced. Well, savings bonds have all those features but one.

The thing you can't do with savings bonds is spend them like cash; you have to cash them in at a bank. (But then, I've sometimes had to cash travelers checks at a bank too.) In the US, pretty much any bank will cash US savings bonds. I assume there's something similar in other countries.

I first noticed this feature in the early 1980s — back before networked ATM machines made it easy to access the money in your accounts from anywhere you happened to be. Travelers checks were a useful tool for carrying your cash. But, when I noticed that several of their key features were shared with savings bonds, I started buying savings bonds instead — they paid interest. And I wasn't the only one. Anybody who needed to move around a lot — for example, military personnel — found them just as useful.

Basically, what you do is this: Buy savings bonds in small quantities over a period of time. This is easy to do; many employers let you buy savings bonds through payroll deduction and many banks will set up automated purchases as well. You can get them in all the denominations that you can get travelers checks and then some: $50, $75, $100, $200, $500, $1,000, and $5,000.

You can't cash the bond in until you've held it for a year, which is why I suggest buying gradually — you wouldn't want to put your whole emergency fund into savings bonds all at once. But, if you buy one every pay period or every month, pretty soon you'll have some that are more than a year old. Once that happens, they're basically just like travelers checks that you can only cash at the bank.

Go into pretty much any US bank with one or a few savings bonds (up to $1000 worth), and you can turn them into cash in just a few minutes. If they're lost or stolen or the paper certificate is damaged, you can get it replaced.

I've been enamored of savings bonds for a long time, but haven't talked about using them this way before here on Wise Bread, because they haven't had a competitive interest rate. Now, though, the rate on I bonds is looking pretty good.

As I mentioned back in July, the Consumer Price Index is about to surge. This isn't because inflation is rising (although I rather expect that to happen as well), it's just because it's now been a year since the big drop in oil prices.

The interest rate paid on I bonds is based on the CPI for the previous six months, so the effect of the oil price drop has already fallen off the calculation. Bonds purchased now will earn interest at a 3.36% annual rate for the next six months. That's a hard rate to beat in the current environment.

There's a 3-month interest penalty if you cash them in during the first 5 years, but even if you end up paying the penalty you still come out ahead compared to most vehicles for small savers. And if inflation rises (as I rather expect it to), the return just gets even better. Combine that with the features that make them like an interest-paying travelers check, and I think they're a pretty good buy right now.

This article is from Philip Brewer of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread: