Ruth Haines
When travelling abroad, it is important to consider the best way to exchange currency. While it may be convenient to exchange currency at the airport, it is not the most cost-effective option. Airport currency exchanges often charge extra fees and offer less favourable exchange rates compared to other options. Ordering currency from your bank before travelling or using a credit card that does not charge foreign transaction fees are generally better options for getting a good exchange rate. Credit cards are widely accepted and can provide a secure and convenient way to pay for purchases while travelling, but it is important to be cautious and aware of potential fees and risks associated with card usage abroad.
| Characteristics | Values |
|---|---|
| Should you buy dollars at the airport with a credit card? | No, it's not recommended. The airport currency exchange doesn't give the best deal and could mean extra fees and poor exchange rates. |
| Alternative options | Ordering currency from your bank before travelling is a better option. Using a credit card with no foreign transaction fees and paying in local currency is also recommended. |
| ATM usage | Use ATMs from local or international banks, not tourist-focused ATM companies. Use your credit card for purchases, not to withdraw money, as fees and interest charges can be very high. |
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What You'll Learn
Airport currency exchange vs. credit card exchange rates
When travelling to another country, you will need to use the local currency. While it may be convenient to exchange currency at the airport, it is not the best option. Airport currency exchanges often charge extra fees and offer poor exchange rates compared to other options.
One way to get a better exchange rate is by using a credit card to make purchases. Credit cards with no foreign transaction fees can help you save money, and it is generally safer than carrying large amounts of cash. However, not all credit cards are accepted everywhere, and merchants in some destinations may prefer cash as they have to pay a fee to the credit card company. It is also important to note that credit card issuers typically charge fees for international transactions, and these fees can add up over the course of a trip. Therefore, it is advisable to check your cardholder agreement before travelling.
If you need cash, it is recommended to order currency from your bank before you travel. Major banks usually allow you to order foreign currency online, through their website or mobile app, or by phone. The exchange rates offered by banks are often much better than those at airport currency exchanges. For example, Bank of America's exchange rates in January 2024 averaged roughly 6% more than the IMF rates, while airport exchanges charged more than double that rate.
When using ATMs abroad, it is best to use those from local or international banks, as tourist-focused ATMs may offer unfavourable exchange rates and charge non-bank usage fees. Additionally, some ATMs give you the option to withdraw in the local currency or have your withdrawal converted into your home currency. It is recommended to choose the local currency to avoid unfavourable exchange rates.
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Using a credit card for purchases abroad
When travelling abroad, it's important to consider how you will manage your money. While it may be tempting to exchange currency at the airport, this is often not the best option due to extra fees and unfavourable exchange rates.
One of the smartest ways to pay for things internationally is by using a credit card. Credit cards offer convenience and security, and they can also help you get a good exchange rate that's close to the market rate. However, it's important to check the terms and conditions of your card, as some credit card companies charge foreign transaction fees, which can add up over time. These fees are sometimes hidden within the overall price, making it unclear what exchange rate is being used. Thus, it is recommended to use a credit card with no foreign transaction fees and to make purchases in the local currency to save money.
When using a credit card abroad, it's also important to be cautious to avoid potential fraud and other criminal activities. Additionally, while credit cards are widely accepted, they may not be accepted everywhere, and some merchants may prefer cash to avoid paying fees to the credit card company. In such cases, it is advisable to carry some cash to cover daily expenses.
Before travelling, it is a good idea to check with your financial institution and ensure you have a card that is widely accepted internationally. Ordering currency from your bank before you travel can also help you get a better exchange rate than using the airport currency exchange. Additionally, some financial institutions offer prepaid travel cards in foreign currencies, although these may have higher fees and may not be accepted everywhere.
In summary, using a credit card for purchases abroad can be a convenient and secure option, but it's important to be aware of potential fees and to use your card with caution to avoid fraud. Ordering currency in advance or using ATMs from local or international banks can also help you get a better exchange rate than relying solely on airport currency exchanges.
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Withdrawing foreign currency from an ATM
When it comes to exchanging currency, it is generally advised to avoid airport currency exchange desks due to their unfavourable exchange rates and potential extra fees. Ordering currency from your bank before travelling is often a better option, but if you need to withdraw foreign currency from an ATM while abroad, there are several things to keep in mind.
Firstly, it is recommended to use ATMs from local or international banks, rather than those aimed at tourists, such as Euronet, as these typically offer better exchange rates and lower fees. It is also advisable to use bank-affiliated ATMs, as independent, non-bank ATMs may charge higher fees. Additionally, withdrawing larger amounts less frequently can help minimise fees.
When withdrawing from a foreign ATM, you may be given the option to be charged in your home currency or the local currency. It is generally best to choose the local currency to avoid dynamic currency conversion (DCC), which allows the ATM provider to set their own exchange rate, often resulting in a less favourable rate for you. By choosing the local currency, you let your bank handle the conversion, which is likely to provide a better rate.
To further reduce fees, you can consider using a card with no foreign transaction fees or a low fee. Some multi-currency accounts offer debit cards that can be used for overseas ATM withdrawals without additional exchange fees, allowing you to manage multiple currencies from a single card or app. Additionally, some non-bank alternatives, such as the Wise account, offer linked low-cost debit cards that can help minimise international ATM fees.
Lastly, be cautious of potential fraud and criminal activity when using ATMs. It is recommended to use ATMs during business hours, and inside secure locations such as banks, supermarkets, or large commercial buildings. Always be aware of your surroundings and take necessary precautions to ensure your safety and the security of your financial information.
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Credit card foreign transaction fees
When buying foreign currency, it is generally not recommended to use the airport currency exchange, as you are unlikely to get a good deal on your currency exchange. Airport currency exchanges often come with extra fees and subpar exchange rates compared to other options. For example, Travelex, one of the world's most popular exchanges, listed an exchange rate for the Euro that was about 8 cents lower than the real exchange rate.
If you are looking to buy dollars at the airport, it is worth noting that you may be able to pay in US dollars directly, as some merchants or individuals accepting tips prefer this in certain countries. You might even be offered a better deal if you pay with US dollars. However, if you are buying foreign currency, it is recommended to order currency from your bank before you travel, as you will typically get a better exchange rate.
If you are travelling abroad, it is worth considering getting a credit card that does not charge foreign transaction fees, also known as FX fees or international transaction fees. These fees are typically around 1% to 3% of the purchase amount, but they can add up quickly. Foreign transaction fees are assessed by your credit card issuer and are charged as a percentage of the purchase you are making. The network, such as Visa or Mastercard, charges your card-issuing bank a fee, typically 1%, to offset the conversion cost and the risk of fraud. Your card issuer may then pass that fee on to you and add its own fee of 1-2%.
There are many credit cards that offer no foreign transaction fees, such as the Chase Sapphire Preferred® Card, Bank of America® Travel Rewards credit card, and the Capital One Venture Rewards Credit Card. If you are loyal to a particular airline, you might want to check out its no-foreign-transaction-fee credit cards. For example, the Delta SkyMiles® Blue American Express Card does not charge foreign transaction fees and has a $0 annual fee.
It is important to note that not all credit cards are accepted everywhere, and some merchants in certain destinations prefer to be paid in cash because they must pay a fee to the credit card company. Additionally, there may be a risk of credit card cloning at some destinations, particularly in restaurants. Therefore, it is recommended to carry some cash to cover daily expenses and use bank-affiliated ATMs when abroad.
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Using a credit card for large purchases
When travelling abroad, it is recommended to order foreign currency from your bank before you travel, as airport currency exchanges may charge extra fees and offer subpar exchange rates. However, if you are looking to purchase foreign currency with a credit card, it is important to note that not all major credit cards are accepted everywhere, and merchants in some destinations may prefer cash due to credit card fees. Additionally, credit card issuers typically charge fees for international transactions.
- Sign-up Bonuses: Some credit cards offer attractive sign-up bonuses, such as cash back, points, or miles, when you spend a certain amount within the first few months.
- Rewards: Rewards credit cards can provide benefits like cashback, points, or miles, which can be useful for future purchases or travel plans.
- 0% Introductory APR: Cards with a 0% introductory APR can help you finance a large purchase over time without incurring immediate interest charges. However, you must make at least the minimum payments each month to maintain the introductory rate.
- Purchase Protection: Credit cards often offer purchase protection, ensuring coverage if your purchased item is defective or stolen.
- Convenience: Credit cards provide a more convenient and safer alternative to carrying large amounts of cash, especially when travelling.
However, it is important to remember that using a credit card for large purchases can also have drawbacks:
- Interest Charges: If you are unable to repay the balance within the interest-free period, you may accumulate debt due to interest charges.
- Foreign Transaction Fees: Some credit cards charge foreign transaction fees, which can increase the overall cost of your purchase when travelling internationally.
- Credit Card Cloning: In certain destinations, there is a risk of credit card cloning, particularly in restaurants.
- ATM Fees: Withdrawing cash from an ATM using your credit card can result in high fees and interest charges.
In summary, while using a credit card for large purchases can offer benefits such as rewards and purchase protection, it is essential to weigh the pros and cons carefully. Ensure that you understand the terms and conditions, including any fees, interest rates, and repayment requirements, to make informed financial decisions.
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Frequently asked questions
Yes, you can use a credit card to buy dollars at the airport. However, it is not recommended as you may be charged extra fees and the exchange rates are often less favourable compared to other options.
Ordering currency from your bank before travelling is generally a better option as it may offer a better exchange rate. Using a credit card with no foreign transaction fees for purchases while abroad is also a good way to get a favourable exchange rate.
Yes, it is important to check with your financial institution before travelling to understand the fees associated with international transactions. Some credit cards may charge foreign transaction fees, so it is recommended to use a card that does not have these fees. Additionally, it is generally advised to avoid withdrawing money from ATMs with your credit card due to high fees and interest charges.
