When traveling internationally, there are three major financial fees that you want to avoid. These fees are: foreign transaction fees, currency exchange fees, and ATM fees. This ultimate guide will show you how to completely avoid all three fees! Before we start talking avoidance strategy, I think it’s important to fully understand the fees we’re trying to avoid.
Foreign Transaction Fees & ATM Fees Explained
Foreign Transaction Fees = When using your credit or debit card to pay for something in another country’s local currency, often times your bank will charge a “foreign transaction fee” to convert the payment in US Dollars. The fee is usually a percentage of the total payment. Most banks that charge foreign transaction fees charge around 3%. For example, if you went to a restaurant in in Italy and paid 20 Euro for a meal, the total cost of the meal in USD would be around $23. If you paid for your meal with a credit card that charged foreign transaction fees, they would tack on an additional ~3% fee. So the total cost of your meal would be $23 + $.69 = $23.69. Paying an additional $.69 cents for a meal may not seem like a big deal, but foreign transaction fees can really add up is your spending a lot of time in other countries.
ATM Fees = I don’t feel like I need to go into much detail here because I’m sure most of you understand ATM fees, but just incase there are a few who don’t… An ATM fee is a fixed fee that your bank charges you when you withdrawal money out of an ATM. For example, if I need to withdraw money out of an ATM that’s out of network in a foreign country, my (old) bank charged me a $5 fee. No matter if I was withdrawing $20 or $200, I always had to pay a $5 fee. Some banks charge more, and some charge less, but in almost all cases it’s a fixed fee no matter the amount of money you withdraw.
If you don’t want to read the rest of the post, and just want to blindly take my advice on which cards you should have for your next international trip, my two MUST HAVE cards for international travel are listed below.
Debit Card = Charles Scwhab Investors Checking Account Debit Card
Credit Card = Chase Sapphire Preferred or Barclay Arrival World Mastercard
Discussing credit cards with no foreign transaction fees was not the original purpose of this post, but I feel like it’s important to mention this up front in case someone is new to international travel.
The best way to pay for things in foreign countries is with a points earning credit card that doesn’t charge foreign transaction fees. A great example of this would be the Chase Sapphire Preferred credit card. This is one of the best credit cards to carry while you travel internationally because you earn 2 points per $1 spent on dining and travel related expenses (travel related expenses include things like metro tickets, taxis, and more). I don’t know about you, but one of our favorite ways to experience a local culture is by eating their food! With the Chase Sapphire Preferred card, I’m able to earn double the points on all the delicious meals we buy while traveling. In addition to offering double the points on dining and travel expenses, this card doesn’t charge foreign transaction fees. This means using the card abroad is exactly the same as using it in the U.S.
Another card to consider is the Barclay Arrival World MasterCard. This card earn 2 points per $1 spent on EVERY purchase. Just like the Chase Sapphire Preferred card, the Barclay Arrival World MasterCard also does NOT charge foreign transaction fees. The main difference between the two cards is the type of points. The Barclay Arrival card earns Arrival miles, which are “fixed value” points. The Chase Sapphire Preferred Card earns Ultimate Reward points, which are “transferrable” points that can be transferred to many different airline partners. Whether you use the Barclay Arrival Card or the Chase Sapphire Preferred card as your credit card of choice when traveling internationally all comes down to which type of points you value more. I won’t go into the details of each program, but you can’t go wrong with either card.
Before we me move forward, there’s one last thing you should know about using your credit card in foreign countries. Here in the United States merchants use swipe technology to charge our credit card. They swipe the card through the card reader, and the card reader reads the information from the little black strip on the back of your credit card. When traveling internationally, you might run into a situations where your “swipe card” isn’t accepted. Many countries are moving to “smart cards” or “chip enabled” cards. Merchants in foreign countries use a different type of technology to charge “chip enabled” cards. Instead of swiping the card, they insert the card into a payment terminal. The terminal reads the information from the chip on your card as opposed to the strip on the back. After the terminal has read your chip, you’ll be asked to enter a 4 digit PIN. Most U.S. credit cards don’t automatically come with a PIN number. You have to call the credit card company to set it up. So before you leave for your next international trip, make sure you have a chip enabled credit with a PIN number already set up. Both the Barclay Arrival World MasterCard and the Chase Sapphire Preferred card come with chip technology!
Cash, Exchanging Money, & Local Currency
Getting a credit card that doesn’t charge foreign transaction fees is the easy part. I have at least 5 cards that offer this benefit. However, I’ve realized that many parts of the world where we travel aren’t willing to accept credit cards as readily as we are here in the U.S.
When traveling internationally you’ll almost always run into to a situation where you credit card isn’t accepted and you have to pay with local currency. A few situations that come to mind from our recent travels include buying Gluhwein (hot wine) from the Christmas markets in Vienna, buying amazing food from street vendors in Thailand, and paying for our Hostel in Prague. Needless to say, there were countless other times on our Euroland trip where credit cards weren’t accepted and we had to pay with cash.
On our trip, we quickly learned that we didn’t have a good system for obtaining local currency. Since we visited five different countries (which used 4 different currencies) on our Euroland trip, our poor system for obtaining local currency became frustrating and expensive. We knew before we left that we could get a better deal on foreign currency by withdrawing it from ATM instead of exchange cash at the airports.
However, none of our credit or debit cards worked well for withdrawing cash from ATMs.
A WORD OF CAUTION: Don’t use your credit card to withdraw cash from ATM. Even though you’ll be able to avoid the foreign transaction fee, your bank will most likely charge you a cash advance fee which can be WAY more expensive!
Since using our credit cards were out of the question, we were forced to use one of our two debit cards. We were carrying a Bluebird by American Express debit card and a Regions Bank debit card. Both of these cards charged both and ATM withdraw fee as well as foreign transaction fee. The fees on the Bluebird card were cheaper. However, we quickly learned that American Express cards are not accepted near as many places as Visa, so most of the time we were forced to use our Regions Bank card to with withdraw money from ATMs.
Our Regions Bank card charged a $5 ATM withdraw fee, plus a 3% foreign transaction fee. So if we were to withdraw $100 dollars, we would pay $8 in fees. This led to a stressful guessing game every time we entered a new country. We had to try to guess exactly how much money we’d need for our time in that particular country.
If we withdrew too much money, then we’d have to exchange our money back to U.S. Dollars before leaving the country, and we’d most likely lose a lot of money from the exchange fees.
If we didn’t withdraw enough money then we’d need withdraw more, and pay another $5 fee, plus 3% of our withdraw amount.
I’m actually pleased to say that we did a pretty good job guessing on our trip. However, it was just an added element of stress that I knew could be avoided. As soon as we got home, I started to search for a better way. That’s when I found the Charles Schwab High Yield Investor Checking Account.
This is a FREE checking account that you can set up with Schwab Bank. After setting up an account you’ll receive a debit card (chip technology included) which offers FREE ATM withdraws ANYWHERE in the world, and does NOT charge foreign transaction fees. This card makes it essentially FREE to withdraw local currency from ATMs in foreign countries! If you’re a frequent international traveler or you hate pointless fees, it’s totally worth setting up a new checking account with Schwab in order to get this debit card.
You can use the link below to find the closest brokerage/bank near you.
Schwab is a little weird because they operate as a brokerage and a bank. In Nashville (where I live) there is only one brokerage firm. They were able to help me set up a new checking account, but I had to mail a check to their head quarters in Florida in order to deposit money into my account. It’s a little annoying, but in my opinion totally worth it!
Since Schwab doesn’t have any physical locations in my city, I won’t be using it as my main bank. Instead, Kara and I will use it as our travel saving account. Each month we try to add money to our travel savings account. Until now, it’s just been lumped in with the rest of our savings. Now we have a specific account that we can use to set aside money for travel! Just an idea of anyone who any who values travel and wants to make it a priority ☺
Our New Plan of Attack
Before, when we showed up to a country, we would always try to find an ATM to withdraw local currency before leaving the airport. This way we’d have cash incase we needed it for transportation, tipping, or street food! However, we’d have to try to guess exactly how much money we’d need for entire trip before we even left the airport (STRESSFUL)!
With our new Schwab debit card, we’ll be able to withdraw a little money at the airport (just enough to get us through the first day). Then when we run out, all we have to do is find the closest ATM, withdraw a little more money, and be stress free because we don’t have to worry about paying extra fees!
In summary… You should always carry at least two cards with you while traveling: a points earning credit card that doesn’t charge foreign transaction fees, and a debit card that doesn’t charge ATM fees or foreign transaction fees. My recommendations for credit cards would be the Chase Sapphire Preferred or the Barclay Arrival World Mastercard. My recommendation for the debit card would be the one that comes with the Charles Schwab High Yield Investor checking. The Schwab debit card get my vote because it’s the only debit card that I know of that’s free from ATM fees and foreign transaction fees. If you know of another debit card, please let me know in the comments below.
Final Thought… If you can use you credit card to make a purchase, do it, because you’ll earn points and you’re also better protected from fraud!