The smartest way to spend while travelling.
By Michael Gebicki
“They took some honey, and plenty of money, wrapped up in a five-pound note,” wrote Edward Lear of the Owl and the Pussy-Cat when they went voyaging off in their pea-green boat back in 1871. If only financing your travels was so easy these days.
Traveller’s cheques are still favoured by a few, and they offer security, reasonable fees and a decent exchange rate, but exchanging them can be painful. Cash is risky, which leaves ATMs as by far the most convenient way to access cash overseas. The good news is they’re everywhere. Over the past 12 months I’ve withdrawn cash from ATMs in India, Vanuatu, Bhutan, Ecuador and Georgia (the country, not the US state), and not one withdrawal was declined.
On the flip side, most ATM withdrawals involve fees and charges that can feel like death by a thousand cuts. As well as ATM fees, the other method that financial institutions use to slice and dice your funds is via the exchange rate – but some cards work better than others to preserve your cash. So what’s the best way to drive your dollar further when you travel?
Travel money cards
Also available under the generic name “cash passport”, travel money cards came on the market a few years ago. Any product that generates so much enthusiasm among financial institutions should inspire caution in the customer. The major banks, various other financial institutions and even Australia Post now offer travel money cards.
In essence these are stored value cards. The customer nominates how much foreign currency they require, deposits funds and then either withdraws those funds in local currency at ATMs or uses the card to pay for transactions overseas.
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Financial institutions use the argument that these cards offer security, effectively locking in the value of the Australian dollar at the prevailing rate of exchange. This works fine should the Australian dollar fall against the other currency between the time of purchase and the time of redemption, but that’s a 50-50 bet.
Travel money cards come with fees and charges that erode the purchasing power of your spending money, and the whittling away starts at the purchase point. For example, in early May if you were to purchase US dollars to load onto an American Express Global Travel Card, the rate would have been US$0.76 to the Australian dollar. Using a MasterCard or Visa card to withdraw funds from an ATM on the same day in Wichita or San Francisco, you could get close to 2 per cent more for your Australian dollars.
As well as having a less favourable exchange rate, many money travel cards also come with an initial load fee, a reload fee for every top-up, and an ATM withdrawal fee, on top of whatever the ATM owner might charge.
The cards are available in major world currencies, but withdrawing in other currencies involves high fees. Should you use a Travelex Multi-currency Cash Passport to withdraw Australian dollars in Chinese yuan or Mexican pesos, the fee is 5.95 per cent. If those funds were accessed using a Westpac Global Currency Card, the fee would be 3 per cent, which is a more typical cash passport rate.
Standard ATM card
Using your regular ATM card overseas wins for convenience and reliability, and if your cash needs are small, the pain inflicted by the fees might be bearable. It involves a transaction fee, usually 3 per cent in the case of cards issued by Australia’s major banks. The exchange rate falls within reasonable parameters.
On a random day in early May, the rate that Visa and MasterCard applied for exchanging Australian dollars into US dollars, euros or British pounds at an ATM fell within the range of 1-1.26 per cent less than the interbank rate. American Express offered a less favourable exchange rate on the same day, as well as a foreign currency conversion fee of 3 per cent, equal to the transaction fee that other card providers charge.
On top of the transaction fee you’ll also pay an overseas ATM fee of A$5 in the case of cards issued by Australia’s major banks, plus whatever the local ATM owner decides to charge.
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One card that does not apply an overseas transaction fee is the Citibank Visa Debit Card. Withdraw using a Citibank ATM facility and you’ll also escape the ATM withdrawal fee. This card has no annual fee or monthly account-keeping fee, and for all these reasons it’s the gold standard among frequent international travellers.
Avoid the Dynamic Currency Conversion trap
When travelling overseas and paying by card, it is becoming common for a merchant, waiter or hotelier to ask if you’d like to pay the bill in local currency or Australian dollars. While the Australian dollar option might sound like a great idea, the currency conversion rate may not always be in your favour.
The Australian dollar payment option means you’re electing to pay at the Dynamic Currency Conversion rate (DCC), also known as the Cardholder Preferred Currency (CPC) rate.
This loads a fee, generally between 3-5 per cent, on top of any international currency conversion fee that your card provider might charge. The DCC fee is a win for the merchant, the financial institution behind the card and the DCC facilitator, which all split the fee.
If you select the DCC option, before you approve payment you should be able to see the currency conversion rate and be allowed to back out from the DCC option at that stage. But it takes an agile-minded traveller to stay totally on top of the prevailing exchange rate. Choose to pay in local currency and you’ll dodge the DCC bullet.
“It takes an agile-minded traveller to stay totally on top of the prevailing exchange rate.”
This article is from the July issue of INTHEBLACK