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It can be lot of fun to visit a foreign country, as you can have the chance to enjoy exotic foods, see unique sites and meet people from a variety of different cultures. But one of the more stressful things about visiting another country is figuring out the most cost effective ways to acquire and spend the local currency.
Just like at home, the two common ways people make purchases in a foreign country are with cash or with a payment card, typically a credit or debit card. Even if you plan on using a credit or debit card, it's a good idea to carry some local currency with you, especially in countries where payment card acceptance isn't as universal as it is in the United States. For example, traditional markets are very common in many places (which are kind of like what we call flea markets), and those vendors often don't take credit cards. Cash can also be necessary to pay taxi drivers or to tip service providers.
There are several ways to exchange your US dollars for local currency. First, you can do so at home, by visiting an American Express Travel Service center. Alternatively, you can exchange currency when you arrive at your destination. Most airports are home to currency exchange companies, but you can expect these locations to charge very high commissions. Also note that currency exchanges rarely buy or sell foreign coins, just paper bills.
Alternatively, you can obtain foreign currency by using an ATM card. Just be aware that you may be charged fees by your bank and the ATM operator. Furthermore, you bank may also impose a foreign transaction fee on purchases or withdrawals made outside the United States. However, you're sure to get the most competitive exchange rate.
One of the great things about credit cards is that they are accepted in nearly every country in the world. For example, American Express cards are accepted in over 160 countries around the world. Credit cards also have very strong exchange rates. A possible drawback of using your credit card to make purchases in a foreign country is the potential to incur foreign transaction fees. These are fees that are imposed on transactions processed outside of the United States, which isn't a foreign currency conversion fee. For example, there are some countries that use US dollars and some foreign merchants may charge you in US dollars, but a foreign transaction fee will still apply. Most credit cards that have this fee charge 3% of the amount of the transaction, and some American Express cards have a 2.7% foreign transaction fee.
Further Reading: What You Should Know About Foreign Transaction Fees
Thankfully, there are a growing number of credit cards that no longer charge foreign transaction fees. Typically, these are travel rewards cards that are designed for the needs of international travelers. There are no foreign transaction fees for the following American Express cards:
(Photo by Atit Phetmuangtong/EyeEm/Getty Images)You can find out if a new credit card has foreign transaction fees by looking at the legally mandated table of rates and fees that card issuers must provide. To find out if your current cards have foreign transaction fees, you'll want to contact your card issuer.
When your credit card has no foreign transaction fees, it can be among the least expensive ways to make a purchase in a foreign country. But when you use your credit card to access cash from an ATM, it will likely be one of the more expensive ways to acquire foreign currency. That's because most credit cards will impose a very large cash advance fee on these transactions, often $10 or 5% of the amount of each cash advance, whichever is greater. Furthermore, cash advance balances are immediately subject to interest charges, while you can generally avoid interest on purchases by paying your statement balance in full.
ATM transactions can also be subject to any foreign transaction fees imposed by the card issuer or other fees charged by the ATM operator. Therefore, you should consider using your credit card at an ATM as a last resort when you can't use your card directly with a merchant to make a purchase.
Further Reading: 7 Ways to Get More from Your Travel Points Credit Card
The last thing that you need to know about foreign currency exchanges is a "service" that some merchants offer called dynamic currency conversion. The idea is that a merchant will offer to charge your credit card in your home currency, which sounds reasonable enough. But while your receipt will appear in US dollars, you may be charged more than you would have been charged in your local currency.
Supposedly, merchants are required to request your permission before they impose this "service" on you. But between the limitations of foreign languages and the merchant's incentive to opt customers into it (merchants receive a commission on each transaction), it's not uncommon to find these extra charges added to you bill without your consent.
Once you know how foreign exchanges work, you can enjoy your trip to any country without having to worry about incurring unnecessary fees when you make purchases.
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