Despite new fees, plastic still reigns
as the best currency for foreign travel
By Lucy Lazarony • Bankrate.com

You've learned to say "Good day" and "Do you speak English?" in five different languages. You have the passport, the trusty travel guide and a bag full of wrinkle-free clothes.

Now it's time to pack that money belt. Should you bring credit cards on your long-awaited foreign trek? A debit card? Tried and true traveler's checks? Cash?

Travel experts say plastic is king, despite some new fees. And traveler's checks and cash are great backups.

First, the bad news: Some major credit card issuers have begun charging a 2 percent to 4 percent fee each time a customer pays with plastic in another country.

"Greed on the part of banks is never surprising," says Ed Perkins, former editor of the Consumer Reports Travel Letter. "Fortunately, not all the cards are doing it. It's not a 100 percent universal thing."

Cards impose new foreign surcharge
Providian was first. Last summer, it began charging cardholders with credit lines of $5,000 to $10,000 a 4 percent surcharge on every transaction made abroad. That means a traveler who plans to charge $1,000 on a foreign trip will have to surrender an extra $40 -- enough for a nice dinner. Citibank quickly joined in, adding a 2 percent fee on foreign currency transactions. AT&T Universal Card, purchased by Citibank in 1998, will begin charging a 2 percent surcharge on June 1.

American Express joined the fee hike bandwagon in April, when it informed its 28 million U.S. cardholders that it would double its foreign fee to 2 percent. The policy begins June 15.

These new fees come on top of the 1 percent currency exchange fees long levied by Visa and MasterCard on transactions made abroad. Card associations bill issuers, and many issuers, in turn, bill customers.

For example, Citibank charges cardholders who make foreign transactions the 1 percent Visa or MasterCard fee plus a 2 percent surcharge. A Citibank customer who buys a $100 pair of shoes in Milan would pay $1 to Visa or MasterCard and $2 to Citibank for a total of $103.

Fees generate controversy
The new fees have received a lot of attention. In the past 90 days, about two dozen major newspapers, including The New York Times, the Los Angeles Times and the Chicago Tribune, have published major stories about the trend, many quoting consumer-group opponents. Since then, the trend has slowed.

Other large issuers, such as MBNA America, Capital One and Bank of America, have not imposed a surcharge.

First USA, the largest Visa and MasterCard lender in the U.S., can't decide. In February, it announced plans for a 3 percent surcharge. In April, it scrapped the idea. The card company has not ruled out levying such a fee in the future.

"We believe a fee may be appropriate to help offset the additional costs associated with foreign transactions, but we don't plan to assess a fee at this time," says David Webster, a spokesman for First USA, the credit card subsidiary for Bank One.

In spite of these new charges, travel experts still view plastic as an excellent way to pay overseas.

Plastic's still the king
Exchange rates offered by credit cards are better, sometimes lots better, than those offered at a currency exchange counters and even at overseas banks. It's still almost always a big enough difference to cover the new surcharges from credit card issuers.

The reason? The exchange rates secured by Visa, MasterCard and American Express are based on wholesale rates offered to large banks and corporations rather than the retail rate offered to consumers. Ditto for exchange rates on debit cards, such as the Visa Check Card and MasterCard Money, which are linked to a cardholder's checking account.

Even when the card issuers' new fees are added in, it's still a better deal than converting overseas, which can be done at banks or foreign currency exchange dealers. They'll swap your dollars at less-favorable "consumer" rates of exchange, plus they charge fees of their own. The bank fees vary widely; the exchange dealers fees run 7 percent or more.

Paying with plastic is also quick and convenient. Particularly in Europe, card acceptance is widespread.

"In Poland, we could pay for groceries with a credit card," says Carol Mickelsen, author of Camping Your Way Through Europe. "Surprisingly enough, campgrounds take charge cards."

In addition, many credit cards come with traveler-friendly features. Some provide extended protection against theft and the accidental damage of purchases, an important consideration when transporting or shipping items back to the States. Others offer travel accident and car rental insurance.

Cards give protection
Paying by credit card also gives you the opportunity to dispute a bill from a foreign merchant. The U.S. Fair Credit Billing Act applies to overseas transactions. The FTC has a brochure that describes the Act.

However, a refund is unlikely if you simply change your mind about a purchase and the merchant has a "no refund" policy or if that lovely vase turns out to be worth less than you thought it was and far less than you paid. Details on disputing a charge are usually listed on your credit card bill, but in general, you must write to your credit card issuer within 60 days of the postmark date of the bill on which the charge appeared.

One thing you don't want to do with a credit card in Europe is take out a cash advance at an automated teller machine.

Fees are steep and interest on these withdrawals -- often in the high teens or higher -- starts immediately. Instead, travel experts urge people to use debit cards such as the Visa Check Card and MasterCard Money to get cash from European ATMs.

"They dispense foreign currency against your U.S. dollars, and they provide you with an excellent exchange rate, the kind a large corporation would enjoy on changing a million dollars," writes Arthur Frommer, author of numerous travel guides and the Web site Arthur Frommer's Budget Travel Online.

"Many smart travelers plan their entire vacation based on the expectation that they will be using their ATM cards for their immediate cash needs," he says. "But remember, as always, never to change more money than you will need for a day or two; do not walk around with large amounts of cash."

ATMs are everywhere
As in America, ATMs are easy to find worldwide. Visa-branded cards are accepted at more than 480,000 ATMs worldwide in the Visa Global ATM Network. MasterCard's Cirrus network of ATMs numbers more than 350,000. Both networks have machines in more than 100 countries, and in places as cold as Antarctica, as low as Singapore's subway stations and as high as 13,000 feet in the Andes mountain range in La Paz, Bolivia.

Europe is closest to North America in its density of ATMs. "ATM machines are all over the place. They're in Croatia. They're in Hungary," Mickelsen says. "It's the way people operate all over Europe."

"Europe is very close to what you would find in the U.S. If you're going to a very small town in America, it might be harder to find an ATM machine -- so it is in Europe."

The Web sites of Visa, MasterCard and American Express list ATM locations in countries around the world. The sites are packed with travel tips and resources, including the numbers to call if a card is lost or stolen outside the United States. Replacement cards may be available in as little as 24 hours. Cardholder liability is capped at $50 and may be waived if the card loss is reported immediately.

Be sure to test debit cards before leaving the country and make sure you have a four-digit, numeric personal identification number for your card. Many ATMs outside North America do not have letters on the keyboard or the letters appear in a different order. Also, find out what kind of fees your bank charges for using ATMs in Europe.

"Generally, it's $2 to $3, sometimes $5," Perkins says.

Because issuers charge a fixed fee for each withdrawal, regardless of dollar amount, Perkins urges travelers to minimize the number of withdrawals they make.

"Taking a small number of large cash withdrawals is the best way to reduce exchange costs," he says.

Cash? Sometimes you must
How much cash a traveler carries is a matter of personal choice.

"That's a question of personal lifestyle," Perkins says. "Lots of people don't like carrying more than $50 or $100. Other people aren't comfortable unless they have $300 or $400."

Debit cards also can be used to make purchases from merchants who accept credit cards. Be sure to ask your card issuer about fees.

Mickelsen, who pays for most of her travels by credit and debit cards, calls cash "a good backup."

"Say you get to some place and you can't find an ATM," Mickelsen says. "I will only get one or two or three days worth of money so I never have a large amount."

Traveler's checks: Uncranky currency
Rick Steves, author of Europe Through the Back Door, suggests people carry traveler's checks as well.

"Despite the ease of ATMs, we still recommend bringing some of your funds in traveler's checks -- enough to get you through a few days in an emergency. They are quicker to replace than ATM cards if they are lost or stolen, and they're not prone to being demagnetized or gobbled up by a cranky machine," Steves writes. "Buy traveler's checks in U.S. dollars ... rather than in European currency. If you don't use them abroad, you can use them when you get home or cash them in at your bank without having to reconvert."

Your best bet is to travel with a mixture of credit cards, debit cards, cash and traveler's checks. Make a list of numbers to call if the cards or traveler's checks are lost or stolen. Carry the list with you at all times.

It's also a good idea to make an exchange rate "cheat sheet."

"One of the most common mistakes is not understanding the exchange rates, when you see 600 of that and 1,500 of this and trying to understand what that means in American dollars," says Cindy Sharpe, managing director of public and governmental relations for AAA Auto Club South. "Try to make yourself an exchange rate cheat sheet so you can quickly tell how that country's currency compares to American dollars."

Use the online currency calculator below to build your cheat sheet with today's exchange rates.

For more precise comparisons on the spot, you'll need to carry a calculator with you on your trip.

"A lot of times when you're traveling, your calculator can be your best friend," Sharpe says.

So do your homework ahead of time and budget your money carefully. Once you get there, however, here's one final piece of vacation advice from the financial experts: Enjoy yourself.

"People will spend two hours looking around London or Paris to save $2 on exchange costs," Perkins says. "That's really crazy."

-- Posted: May 21, 1999