How You Can Avoid Unnecessary Fees When Traveling Overseas
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By Jane Mepham
This summer my family and I had a chance to travel overseas for a vacation versus visiting family.
Most of our family lives overseas, in different countries, so in the past, we’ve mapped our trips based on visiting folks we haven’t seen in a while. Because we are familiar with the destinations there were things we take for granted that I was reminded of on this trip.
Jane Mepham
A lot of it had to do with fees and how to avoid paying extra.
Don’t Take the U.S. Passport for Granted
The U.S. passport is one of the more powerful passports to own in the world. It ranks 7th on the Henley Passport Index. Out of the total 195 countries in the world, you can visit about 185 of them without a visa.
This makes overseas travel very accessible for a U.S. passport holder – you can avoid visa fees and can travel at any time.
Take advantage and travel now, don’t wait until you retire. For this post, I’m referring to short-term travel, anywhere from a few days to a couple of weeks.
Debit Cards are Not Treated Equally Everywhere
I use my debit card like a credit card everywhere. But on international trips, it may not be the best choice for some transactions for the following reasons.
- A lot of hotels simply won’t take debit cards for a security deposit. This was the case on our recent trip to Mexico. If you are relying on a debit card for the deposit, the only solution is to pay cash in U.S. dollars.
- If you don’t have cash, they’ll conveniently have an ATM machine, with a terrible exchange rate. More on this later.
- Of the ones that take debit cards, they typically put a hold on more money than needed for the deposit. This is cash you won’t have available to use, and it can sometimes take up to 14 days to get the hold released.
If you plan to use a credit card overseas, ensure it’s one without international or foreign transaction fees, which can be as high as 5%. Some examples of this are Bank of America and Capital One Venture Card.
ATM Machines and Fees
On this trip to Mexico, we knew we needed cash in the local currency (pesos), but we had not counted on needing U.S. dollars for the hotel deposit. They had ATM machines that dispensed dollars and some that did pesos.
As a rule, don’t use standalone ATMs, like the ones besides the road.
The hotel ATMs are relatively safe, but they charge you a commission fee ($2 to $3 dollars), in addition to a small transaction fee (about $2 dollars). Other fees include currency exchange fees and international withdrawal fees.
The most expensive transaction was withdrawing U.S. dollars (cost around $35 to get a couple of hundred U.S. dollars). The lesson, bring enough cash!
The smaller the bank and the less widely known it is, the greater fees. Instead, use ATM machines in the bank, and if possible, look for banks you are familiar with or big-name banks. Some examples of this are HSCB and Santander (Bank of America).
The bank’s ATM doesn’t have a commission fee and the transaction fee is also lower. They are also likely to waive the other fees mentioned above. This is something I have experienced in other countries as well.
The transaction and the commission fees are charged every time you withdrew money, so to avoid the multiple charges, withdrew a big amount once instead of multiple smaller amounts.
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Dynamic Currency Conversion (DCC)
To get the best rates possible, avoid exchanging money at the airport (could be as much as 15% less than what your bank would give you). Instead, withdraw the money from your bank via the ATM.
In the process of withdrawing money, one of the questions you get is whether you want to use the exchange rate of the ATM. The best answer is NO since you’ll get a lower rate.
This is the idea behind dynamic currency conversion (DCC). It’s used by ATMs when you withdraw money or by merchants when you make purchases with a credit card.
It’s an optional service offered at the point of sale, usually in the form of this type of question: “Would you like to convert the transaction from the local currency to U.S. dollars (your home currency)?”
Another version of the question: “Would you like to accept the current exchange rate?”
The attraction is that you’ll be able to know exactly how much you are paying in U.S. dollars. There is also the mistaken idea that your bank or credit card company will not charge a foreign transaction fee.
The problem is the local merchants will use a higher conversion rate than the going rate or what your bank at home would have given you., and pocket the difference as fees. I’ve read of this being as high as 7%.
So, the correct answers to the above questions are NO and DECLINE
Talk to Your Bank Before You Leave the U.S.
Let your bank and your credit card provider know you are going to be outside the country and the dates you plan to be traveling. This way, your foreign transactions will not be flagged as fraudulent. In addition, have them explain what fees you can expect to pay on your transactions. This is so there are no surprises when you get back.
With the above tips, your vacation is likely to be a lot more enjoyable!
About the author: Jane Mepham
Jane Mepham is the founder & principal advisor at Elgon Financial Advisors, a registered investment advisor in the state of Texas.
She enjoys simplifying the complexities of the U.S. financial system for immigrants and foreign-born families, including those on work visas. She loves working with her clients to map out a personal strategy that addresses all areas of their financial lives (budgets, college planning, insurance, retirement, tax planning, investing, etc.) allowing them to take full advantage of the opportunities available and avoid key financial mistakes that could derail their American dreams.
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