You’ve done your due diligence: booked a well-priced flight, found a discounted hotel and snagged a great rental car deal, but the savings shouldn’t stop there. It’s also important to consider the least expensive way to pay for items while at your location. Should you use cash that you exchanged while at home? Should you withdraw cash at an ATM once you get there? Should you pay by credit card? Let’s look at the pros and cons of the ways to pay while traveling.

Exchanging money at home

Before leaving home, I take about $100 cash in the currency of the country I’m visiting. It’s a ‘just-in-case’ habit that I feel safer doing. So where’s the best place to get that money?

If you exchange money at a home bank, you’re sure to pay a higher fee for it. If you exchange in your hometown at a business that specializes in currency exchange, you’ll pay a lower rate than at a bank. Another service to consider is Knightsbridge Foreign Exchange. They claim to offer currency exchange at 2% better than banks.

As a Canadian who travels to the U.S. and to countries that use U.S. money, I have a no-fee U.S. dollar savings account with my home bank. Whenever the exchange rate is favorable, I buy U.S. cash and deposit it in that account. I use this account to withdraw my $100 ‘just-in-case’ money or to pay the credit card I’ll likely use. More below on “Using Credit Cards”.

Exchanging money at the airport

You’ll likely pay more for the convenience of exchanging money at the airport. Whether it’s your departing airport or your arrival airport, I avoid cash exchanges at any airport.

Exchanging money at a foreign bank with a teller

This is a good option, especially if you can exchange at a bank that offers zero foreign transaction fees. Before heading to the foreign bank, search banks that are partnered with the one you use at home. When you use your bank debit card, those partnered banks will more likely waive the transaction fee.

The drawback of teller-assisted transactions is that many foreign banks have inconvenient, short hours and may only be open during the day when you want to be out exploring the area.

Withdrawing money at a foreign ATM

Withdrawing at a foreign ATM is a cost-effective and convenient option. Again, search for ATMs that share a partnership with your home branch. To find these on your mobile, open your bank app, click ‘Find ATM,’ and then hit ‘International.’ Here’s a Bank of America example.

If you use the ATM at a non-partnered bank, you’ll pay an international transaction fee plus the conversion rate. The conversion rate is often equivalent or slightly better than the conversion you’d pay at home. As for transaction fees, $5.00 is the average. ATM’s limit how much you can withdraw, but to minimize the transaction fee withdraw as much as you can – as long as you have a safe place to keep the extra cash. Ensure you don’t carry large amounts of cash with you.

Credit cards

For travel outside North America, I pay using either a credit card or cash that I’ve withdrawn from the foreign ATM. However, before paying by credit card, research and choose the best card for out-of-country purchases.

Choosing a no-FX fee card

Use credit cards that have no foreign exchange (FX) fee. FX fees can add up to 3% extra on your purchases. Typically, non-FX fee cards charge an annual fee. To find a no-FX fee card:

  • Check your home branch to find their no-FX fee card options. If you sign up, ask them to waive the annual fee.
  • Credit card competition is fierce and financial institutions continue to offer new perks to gain your business. To find a card that’s no charge, just search ‘no annual fee foreign exchange credit cards.’
  • Cross-reference your finds by looking at reviews with the independent credit card gurus. For Canadians, I like CreditCardGenius.ca. For Americans, Clark Howard dispenses good travel card advice.

More on credit cards

For Canadians who travel to the U.S., check with your bank and sign up for a U.S. dollar credit card. If you can get this card in Canada at no fee, it may be smarter to use it while traveling. Because it’s in US dollars, there is no FX fee. Then you can pay it off using the U.S. money from your Canadian US$ bank account. See above, ‘Exchanging Money at Home’.

Before traveling, let your credit card company know you’ll be using your card while out of the country. Otherwise, your card could be flagged for foreign activity and your account frozen. Though this requirement is becoming less common, there are still financial institutions that need to know.

When paying for an item at your destination, you may be asked if you would prefer to pay for your purchase in the local currency or in your home currency. Paying in your home currency usually costs more because the retailer chooses the conversion rate.

Also, be selective about where you use your credit card. Just because the street kiosk will take a credit card doesn’t mean it’s a good idea to use it there.

It takes some analysis and time to come up with the least expensive way to pay while traveling abroad, but the savings can be worth the initial time investment. Hopefully, these tips will fast-track your decisions.

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