One of the most asked questions I get from clients is “what is the best way to make purchases in foreign countries”? As a traveler, you don’t often come out ahead on a foreign transaction, but you can minimize your losses. Overall, credit cards and debit cards are the best way to make purchases. Your exchange rate benchmark is the "bank rate" that you see on the financial pages. Bank rates are not fixed by government negotiation; they "float" and fluctuate like stock and oil prices. When you travel outside the U.S., here is what I see as your best options for making purchases:
Use A Credit Card that doesn’t charge foreign transaction fees - most of the world now accepts plastic from the major credit card companies. When you put a foreign-currency charge on your credit card, the merchant submits the charge to its bank in their currency, then the merchant's bank sends the charge to your issuing bank through the credit card network, then the network converts the currency using their daily exchange rate and it is then charged to your credit card account in US dollars. For completing the transaction for you, the network usually assesses a conversion fee of about 1%. So, in most circumstances, the best way to pay for foreign charges is by credit card. But you need to know that some credit cards also add foreign transactions fee or surcharges. Typically, that surcharge is around 3% and if you have a card that charges that fee and you use your credit card a lot, those fees can really add up.
And beware……do not use a credit card to get cash. Card issuers treat that as a cash advance and start the meter running on interest and fees as soon as you get the cash and don’t stop charging those fees until you pay in full.
And remember that it usually doesn’t pay off to have the foreign merchant bill you in US dollars: The merchant will convert the bill to dollars at a high rate plus you'll still pay any conversion fees your bank credit card bank might charge.
One more thing to keep in mind, most countries, including Europe, only accept credit cards that have a chip. If your card doesn’t have a chip, you probably won’t be able to use it.
Use ATM Debit Cards for Local Cash - No matter how much you use your credit card, you will still need some local currency. Using a debit card at a local ATM is one of the best ways to get local cash. Typically, your bank will add a transaction fee for any withdrawal at an ATM not operated by the bank (or a partner), whether it be in the U.S. or in a a foreign country. And usually the foreign ATM you use will add their own fees, but it is still the most cost-effective way to get foreign cash.
We, as Americans, are very fortunate that English is the universal language. In most of the world, ATMs display instructions in several languages, of which English is almost always one of the options.
And you need to be aware, I’ve read that lots of the big foreign gateway airports have cut deals to give exclusive ATM installations to retail exchange outfits such as Travelex. These ATMs say "no fees," but they give you a pretty lousy exchange rate. I’m not sure how true this is but just to be safe, if you arrive without any local cash, try to use a credit card to get you into town where you can then find genuine bank ATMs.
Buy Foreign Currency Before You Go - You can buy most foreign currencies at a US Bank before you leave home. That way, you won't arrive at a destination with no local money, but that convenience comes at a cost. The exchange rates are usually not very good.
Exchange Cash at Your Destination - Exchanging one currency for another usually means accepting a bad exchange rate. You're likely to lose anywhere from around 5% to more than three times that. Here’s some things to keep in mind: 1. Buying local currency with cash at an arrival airport will give you a poor exchange rate. Buying foreign currency with dollars at an exchange booth at a U.S. departure airport is even worse. Typically, airport exchange bureaus mark up the currency by as much as 15% and may also add a fee to that. Most people involved in the travel industry say that : "An airport is the worst place to exchange currency." Again, that applies to both departure and arrival airports. 2. Rates at street exchange offices in foreign countries are a crapshoot. Shopping around can be a hassle, and most of the time, the combination of exchange rates, fees, and "service charge" amounts to a bad deal. You can sometimes run across a reasonable deal, but unless you have advance information, you can't count on it. 3. Some hotels exchange currency and they post rates—usually bad rates - that are worse than you get at exchange bureaus on the street.
In the past, lots of travelers also bought travelers' checks, which didn't help on the exchange rate but did prevent you from losing your money if they were stolen or you lost them. Although nobody accepts travelers checks anymore, exchanging greenbacks still works. Just remember that it will always cost you some money in fees, that’s just the way it is. Happy travels!